MASTER 

NEGATIVE 
NO.  95-8251 5- 11 


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Author: 


Title: 

Agricultural  credit  banks 
of  the  world 

Place: 

New  York 

Date: 

[1913] 


MASTER   NEGATIVE   # 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


739.2 
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Banking  law  journal  company. 

Agricultural  credit  banks  of  the  world;  a  re- 
view of  the  mortgage-loan  and  credit  systems  of 
foreign  countries,  how  farmers  are  aided  by  long 
and  short  term  loans,  amortization  features  and 
low  rates  of  interest  ...  Nev/ York,  The  Banking 
law  journal  company,  cl913. 

40  p.   illus.   28^". 

"Banking  law  journal  year-book,  1913." 


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UNITED  STATES  MORTGAGE  AND  TRUST  CO. 

NEW  YORK 


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The  Oldest  Bank  in  the  United  States 


Bank  of  North  America 

(National  Bank) 

Philadelphia 


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ROBERT  MORRIS 
Founder  o<  the  Bank  of  North  America 


^HILE  THE  YEAR  OF 
1913  marks  the  fiftieth 
anniversary  of  what  is  known  as 
the  National  Banking  System, 
THE  BANK  OF  NORTH 
AMERICA  IN  PHILADEL- 
PHIA has  been  a  NATIONAL 
BANK  in  character  for  ONE 
HUNDRED  AND  THIRTY- 
TWO  YEARS,  having  received 
its  first  charter  from  the  Continental  Congress  in  1781. 
The  aid  it  rendered  the  struggling  colonies  and  after- 
wards the  Federal  Government,  justifies  this  claim. 
Following  in  the  line  of  its  early  precedent,  it  has 
been  operating  under  the  present  National  System 
since  1 864.  Its  continual,  unbroken  record  of  serving 
legitimate  business  enterprises,  as  well  as  the  Govern- 
ment of  the  Nation,  throughout  its  entire  career,  is 
evidence  that  it  has  always  been  under  able  and  effi- 
cient management. 

OFFICERS 

H.  G.  MICHENER,  President 
S.  D.  JORDAN,  Cashier  R.  S.  McKlNLEV,  Ass't  Cashier 

W.  J.  MURPHY,  Ass't  Cashier     C.  M.  PRINCE,  Ass't  Cashier 


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A  REVIEW  OF  THE  MORTGAGE-LOAN  AND  CREDIT 
SYSTEMS  OF  FOREIGN  COUNTRIES  :  HOW  FARMERS 
ARE  AIDED  BY  LONG  AND  SHORT  TERM  LOANS 
AMORTIZATION  FEATURES  AND  LOW  RATES  OF  INTEREST 


Banking   Law   tournal   Year- Book 


1913 


PUBLISHED  BY 

THE  BANKING  LAW  JOURNAL  COMPANY 

27  THAMES  STREET,  NEW  YORK 


Copyright,  1913,  by  the  Banking  Law  Journal  Company 


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Directors: 

HORACE  E.  ANDREWS 

President  New  York  State  Rys. 

AUGUST  BELMONT 

August  Belmont  &  Co. 

AUGUST  BELMONT,  Jr. 

August  Belmont  &  Co. 

DANIEL  J.  CARROLL 

President  Alberene  Stone  Co. 

SAMUEL  S.  CHILDS 

President  Childs  Co. 

HARDEN  L.  CRAWFORD 

President  The  Century  Bank 
of  New  York 

P.  S.  DU  PONT 

Treasurer  E.  I.  Du  Pont  de 
Nemours  Powder  Co. 

DESMOND  DUNNE 

President  Desmond  Dunne  Co. 

ELLIS  P.  EARLE 

President  Nipissing  Mines  Co. 

O.  G.  FESSENDEN 

Hayden  \\  .  V\  heeler  &  Co. 

ELBERT  H.  GARY 

Chairman  of  the  Board 
U.  S.  Steel  Corporation 

H.  STUART  HOTCHKISS 

Vice-President  and  Treasurer 
L.  Candee  Rubber  Co. 

JOHN  M.  HANSEN 

President  Standard  Steel  Car  Co. 

PARMELY  W.  HERRICK 

Cleveland,  Ohio 

GEORGE  M.  HARD 

Chairman  of  the  Board 


FRANK  J.  HEANEY 
Vice-President 

WILLIAM  H.  STRAWX 

Vice-President 

HENRY  L.  CADMUS 

Assistant  Cashier 

W.\LTER  B.  BOICE 

Assistant  Cashier 


100  Years  a 
Commercial  Bank 


THE 


192  3k-daiJw%y    '. 
Ct>r.  John  St. 


/         ,       •     •  •  »  •  •     «    • 


apital&'Surplas,  $3,500,000 
Resources,    .     .27,000,000 

Invites  Your  Account 


Officers; 

LOUIS  G.  KAUFMAN 
President 

GEORGE  M.  HARD 
Chairman 


Directors: 

FRANK  J.  HEANEY 

Everett,  Heaney  &  Co. 

RICHARD  H.  HIGGINS 

Vice-President 

LOUIS  G.  KAUFMAN 

President 

EDWARD  E.  LOOMIS 

President  D..  L.  &  W.  Coal  Co. 

WILLIAM  A.  LAW 

Vice-President  First  National  Bank 
of  Philadelphia,  Pa. 

FRANK  R.  LAWRENCE 

Counsellor-at-Law 

WALDO  H.  MARSHALL 

President  .\merican  Locomotive  Co. 

JOHN  RINGLING 

Ringling  Bros. 

EDWARD  SHEARSON 

Shearson,  Hammil  &  Co. 

HENRY  P.  SHOEMAKER 

New  York  City 

C.  A.  STARBUCK 

President  \ew  York  .\ir  Brake  Co. 

SANFORD  H.  STEELE 

President  General  Chemical  Co. 

.    ALBERT  A.  TILNEY 

Harvey  Fisk  &  Sons 

FRED'KD.  UNDERWOOD 

President  Erie  Railroad  Co. 

JOHN  D.  VERMEULE 

President  Goodyear  Rubber  Co. 

SAMUEL  WEIL 

Samuel  Weil  &  Son 


RICHARD  H.  HIGGINS 
Vice-President 

BERT  L.  HASKIXS 

Cashier 

NORBORNE  P.  GATLING 
Assistant  Cashier 

HENRY  C.  HOOLEY 

Assistant  Cashier 


We  invite  the  Accounts  of  Banks,  Bankers, 
Manufacturers,  Merchants  and  Individuals 


XVI 1 1 


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CONTENTS 


FOREWORD 

SOIL  CULTIVATION 

FOREIGN  MORTGAGE-LOAN  SYSTEMS 

LIQUIDATION  OF  A  MORTGAGE  LOAN 

GERMANY 

THE  LANDSCHAFTEN 

GERMAN  MORTGAGE  BANKS     . 

CO-OPERATIVE     AGRICULTURAL     CREDIT     SYSTEMS    IN 

GERMANY  .... 

THE  VILLAGE  BANKS 
THE  POPULAR  BANKS       . 
AGRICULTURAL  IMPROVEMENT  B.\NKS 
THE  PRUSSIAN  CENTRAL  LANDSCHAFT 
BAVARIAN  HYPOTHEK  BANK    . 

FRANCE  

THE  CREDIT  FONCIER  . 
THE  CREDIT  AGRICOLE  . 
CO-OPERATIVE  AGRICULTURAL  CREDIT  IN  FRANCE 

ITALY  

JAPAN  

THE  HYPOTHEC  BANK  OF  JAPAN 

AGRICULTURAL  AND  INDUSTRIAL  BANKS  IN  JAPAN 

AUSTRIA  AND  HUNGARY 

BELGIUM 

RUSSIA 

SWITZERLAND 

HOLLAND 

ENGLAND  AND  IRELAND 

CANADA'S  CREDIT  UNIONS 

DENMARK      . 

EGYPT 

CREDIT  FONCIER  EGYPTIAN 

THE  PHILIPPINES 

INDIA  . 

MEXICO 

PRELIMINARY  REPORT  OF  THE  AMERICAN   COMMISSION  ON 

AGRICULTUR.\L  CO-OPER.\TION 


PAGE 
1 

2 
3 
5 
6 
7 
10 

11 
12 
14 
15 
15 
19 
21 
21 
24 
27 
28 
29 
29 
32 
32 
32 
3>i 

34 
34 
35 
37 
37 
38 
38 
39 
39 

40 


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32.2. 


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The  Chase  National  Bank 


of  the  City  of  New  York 


(Clearing  House  Building) 

Capital       ...         $       5,000,000 
Surplus  and  Profits  (Earned)  10,096,941 

Deposits,  August  9.  1913  11 8,564,03 1 


A.  BARTON   HEPBURN,  CHAIRMAN 

ALBERT  H.  WIGGIN,   VRCSIDENT 

SAMUEL  H.  MILLER,  vice  PRis.                    CHARLES  C.  SLAOC 

.  AS«-T   C  A«HICR 

EDWARD   R.  TINKER.  Jr..  vice  prcs.         EDWIN  A.  LEE.  ASS 

T  CASHIER 

HENRY  M.  CONKEV,  cashier                          WILLIAM   C.  PUROV, 

ASS-T    CASHIER 

ALFRED  C.  ANDREWS,  ASS'T  CASHIER 

DIRECTORS 

HENRY  W.  CANNON                                                               JOH  N   1 .  WATE  RSU  R  V                     | 

JAMES  J.  HILL                                              ^                          GEORGE   F 

BAKER 

GRANT   B.  SCHLEY                                     Q|                         ALBERT  H. 

WIGGIN 

A.  BARTON   HEPBURN                                                      GEORGE  F. 

BAKER,  JR. 

FRANCIS   L.   HINE 

We  receive  accounts  of  Banks,  Bankers,  Corporations,  Firms 

and  Individuals  on  favorable  terms,  and  shall  be  pleased  to 

meet   or   correspond    with    those    who   contemplate 

making    changes    or    opening     new     accounts 


Foreign    Exchange   Department 


XX 


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Organized    1838 


Nationalized    1865 


THE 


American  Exchange 

National  Bank 

Ne>v  York 


Total  Resources  Over  S60.000,000 

When  you  are  forming  a  banking  connection,  we  ask  your  con- 
sideration of  our  75  years'  reputation,  experience  and  ability 
to  render  you  personal  and  special  service   in    all  departments. 


LEWIS  L.  CLARKE,  President 


I 


EDWARD  BURNS,  Vice-President 
GEORGE  C.  HAIGH,  Vice-President 
A.  K.  de  GUISCARD,  Asst.  Cashier 


WALTER  H.  BENNETT,  Vice-President 

ARTHUR  P.  LEE,  Cashier 

E.  A.  BENNETT,  Asst.  Cashier 


;U\S»'-     •.'#,>■• 


FOREWORD 


T  IS  a  remarkable  fact  that  whereas  in  European 
Countries  the  mortgage-bank  system  of  aiding 
farmers  with  loans  at  low  cost  to  them,  has  ex- 
isted for  more  than  half  a  century,  in  the  United 
States,  the  greatest  agricultural  country  in  the 
world,  so  little  has  been  done  in  this  direction 
that  the  system  may  be  said  to  be  non-existent. 

Q  Here  and  there  we  have  had  sporadic  instances  of  such  institu- 
tions approximating  in  their  methods  and  results  those  found  in 
Europe;  but  these  exceptions  merely  emphasize  the  absence  of  a 
proper  system. 

Q  It  is  all  the  more  remarkable  because  for  twenty  years  past  we 
have  had  so  much  discussion,  periodically,  of  the  desirability  of 
such  methods  of  helping  our  agriculture,  that  there  is  a  voluminous 
literature  on  the  subject. 

Q  Furthermore  the  farmers  constitute  a  powerful  factor  in  our 
political  life  and  can  usually  get  what  they  seriously  and  persist- 
ently demand;  yet  they  have  not  moved  concertedly  to  obtain 
remedial  legislation  that  shall  relieve  them  from  the  burden  of  high 
interest  rates. 

Q  This,  too,  in  the  face  of  the  fact  that  in  no  country  is  there  such 
a  mass  of  current  literature,  weeklies  and  monthlies  devoted  to 
agricultural  interests,  which  one  would  suppose  should  have  edu- 
cated the  farmers  to  demand  equitable  treatment. 

Q  Now  that  the  result  of  this  policy  of  inaction  has  been  to  diminish 
the  volume  of  farm  products,  in  consequence  of  which  we  are 
pinched  by  high  prices,  we  have  suddenly  waked  up  to  the  needs. 

Q  A  comprehensive  discussion  of  foreign  systems  with  accounts  of 
typical  mortgage-loan  banks  abroad,  will,  therefore,  prove  of 
more  than  ordinary  interest  and  instructive  value. 


i-r  i/ 


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PRE- 
HISTORIC 
CULTIVA- 
TION 
STIl.L  IN 
USE 


MODERN 
CULTIVATION 


*<  : 


I 


CULTIVA- 
TION 

IN  EARLY 
DAYS 


SOIL  CULTIVATION 


« 


ft' 


THE    FOREIGN    MORTGAGE-LOAN    SYSTEMS 


)HE  chief  features  of  the  system  of  mortgage  loans  in  other  countries, — 
known  as  "hypothek"  systems, — are  the  long  terms  for  which  loans 
are  made,  the  amortization  provisions,  and  the  low  rates  of  interest 
charged.  Operating  together,  the  result  is  that  the  borrowers,  by 
paying  periodically  a  fixed  sum,  usually  less  than  that  which  is 
exacted  in  most  parts  of  this  country  for  interest  alone,  are  grad- 
ually paying  off  the  principal  of  their  debt. 
To  illustrate: 

A  loan  for  $i,ooo  under  the  German  system,  payable  in  i8  years,  requires  a 
payment  of  ^80  a  year;  when  the  period  has  elapsed  and  all  instalments  have  been 
paid,  the  borrower  owes  nothing;  he  has  then  paid  $1,440,  thus  apparently  paying 
as  interest  $440,  or  at  the  rate  of  only  2.44  per  cent,  per  annum.  Actually  he  paid 
4  per  cent.,  but  by  reducing  his  debt  each  year,  he  gets  the  benefit  of  diminishing 
interest  by  reason  thereof. 

Thus  at  the  outset  he  pays  $40  on  account  of  principal  and  $40  for  interest  on 
the  full  amount  of  the  loan  of  $1,000;  the  second  year  he  has  to  pay  interest  on  only 
$960,  which  means  $38.40;  so  that  he  has  $41.60  of  his  $80  payment  to  be  applied  to 
the  reduction  of  the  principal.  The  actual  interest  payment  thus  decreases  each  year, 
and  the  amount  which  can  be  applied  to  principal  increases,  with  the  result  as  stated. 
With  us  the  borrower  in  case  of  an  ordinary  mortgage  loan  at  8  per  cent,  (if  he 
is  forced  to  carry  a  mortgage  for  18  years)  would  pay  $1,440  in  interest  and  then 
have  his  principal  still  to  pay.  True,  our  ordinary  mortgages  do  not  run  for  so  long, 
but  in  many  cases  they  run  for  periods  nearly  as  long,  and  there  are  often  renewal 
charges  added  to  his  expense. 

Which  system  is  more  conducive  to  the  development  of  agriculture? 


ift 


AGRICULTURAL      CREDIT      BANKS 

The  ratio  of  instalment  payments  varies,  of  course,  with  the  period  for  which 
the  loan  is  to  run.  Thus  it  goes  from  lo  per  cent,  on  a  14-year  loan,  to  ^}4  per  cent, 
on  a  34-year  loan.     A  6  per  cent,  rate  is  made  on  a  mortgage  running  for  28  years. 

Loans  are  often  made  for  50  and  even  75  years,  which  of  course  reduces  the 
annual  instalment  even  more.  There  are  also  irredeemable  loans  made  in  some 
cases. 

The  method  employed  in  general  is  to  issue  bonds  based  on  the  mortgages  and 
sell  these  bonds  to  investors.  All  over  Europe  such  bonds  are  regarded  as  prime 
investments  by  capitalists  and  thrifty  people  generally.  They  are  satisfied  as  to 
their  absolute  safet\ ,  because  there  is  no  better  security  in  the  long  run  than  improved 
and  productive  real  estate.  Most  of  these  bonds  bear  4  per  cent,  interest,  although 
many  are  issued  at  3^2  per  cent.; yet  they  are  in  good  demand  because  capital  is  so 
abundant. 

The  companies  making  the  loans  usually  limit  the  bond  issues  to  twent\'  times 
their  capital  stock,  increasing  the  latter  as  the  business  grows.  There  is  hence  a 
20  per  cent,  guarantee  fund  behind  the  bonds  in  addition  to  the  mortgages.  Thus 
every  $1,000,000  in  bonds  has  behind  it  in  mortgages  $1,000,000  and  in  other  securi- 
ties and  cash  $200,000. 

One  circumstance  not  to  be  overlooked  is  that  in  Europe  the  communities  are 
far  more  settled  than  is  the  case  with  our  agricultural  population,  particularly  in  the 
Western  sections;  yet  this  does  not  obtain  in  our  Eastern  and  Southern  sections,  where 
there  is  a  considerable  permanency  in  tenure  and  occupancy  of  land.  On  the  other 
hand  the  superior  loaning  system  makes  very  potently  for  permanence,  by  obviating 
the  pressure  which  causes  the  discontent  and  desire  for  change  in  the  mind  of  the 
farmer. 

It  is  as  a  matter  of  course  also  to  be  considered  that  in  a  relatively  new  country 

interest  rates  are  higher 
than  in  older  ones,  where 
wealth  has  been  accumu- 
lating for  generations.  But 
it  is  a  fact  that  if  we  had 
had  the  system  installed  in 
this  country,  we  could  have 
obtained  cheap  money 
abroad  for  the  purpose. 
All  that  is  necessary  now 
is  that  we  create  a  system 
that  assures  securit}'  for 
the  investor  beyond  all 
doubt. 

ANCIENT 
CULTIVATION 


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Table  Showing  Process  of  Liquidation  of  a  $1,000 

Mortgage  Loan 


Annual  Payment  $60;  interest  4%,  sinking  fund  2% 


Due  on 
Principal 
$1,000.00 
$980.00 
959,20 
937,57 
915.07 
891.67 
867.34 
842.03 
815.71 
788.34 
759.87 
730.26 
699.47 
667.45 
634.15 
599.52 
563.50 
526.04 
487.08 
446.56 
404.42 
360.60 
315.02 
267.62 
218.32 
167.05 
113.73 
58.28 
0.61 


Years . 

Interest 
Payment. 

Sinking 
Fund. 

Paid  on 

Principal 

1 

$40.00 

$20.00 

$20.00 

2 

39.20 

20.80 

40.80 

3 

38.37 

21.63 

62.43 

4 

37.50 

22.50 

84.93 

5 

36.60 

23.40 

108.33 

6 

35.67 

24.33 

132.66 

7 

34.69 

25.31 

157.97 

8 

33.68 

26.32 

184.29 

9 

32.63 

27.37 

211.66 

10 

31.53 

28.47 

240.13 

11 

30.39 

29.61 

269.74 

12 

29.21 

30.79 

300.53 

13 

27.98 

32.02 

332.55 

14 

26.70 

33.30 

365 . 85 

15 

25.37 

34.63 

400.48 

16 

23.98 

36.02 

436.50 

17 

22.54 

37.46 

473.96 

18 

21.04 

38.96 

512,92 

19 

19.48 

40.52 

553.44 

20 

17.86 

42.14 

595.58 

21 

16.18 

43.82 

639.40 

22 

14.42 

45.58 

684.98 

23 

12.60 

47.40 

732.38 

24 

10.70 

49.30 

781.68 

25 

8.75 

51.27 

832.95 

26 

6.68 

53.32 

886.27 

27 

4.55 

55.45 

941.72 

28 

2.33 

57.67 

999.39 

Balance 

0.61 

1,000.00 

Total. 

$1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 


Total         $680.61   $1,000.00 


28  annual  payments  of  $60  equal  $1,680.  Interest  account  $680  equals  per  annum  an  average  rale  of  2.43 
per  cent. 

Actually  the  interest  figures  out  61  cents  more,  which  requires  that  amount  to  balance  the  principal;  if  pa\- 
ments  are  made  semi-annually  this  difference  disappears. 


'  » 


Germany 


IT  was  in  Germany,  (specifically  in  Prus- 
sia) that  the  first  steps  were  taken  to 
provide  credit  institutions  for  agricul- 
turists. The  inception  of  the  system 
dates  from  the  days  of  Frederick  the  Great, 
in  1769,  although  it  took  time  and  experience 
to  develop  it  into  the  present  complete  and 
comprehensive  status. 

The  origin  of  the  system  must  be  credited 
to  a  Berlin  merchant  named  Biihring,  who 
submitted  a  memorial  to  King  Frederick;  it 
was  first  placed  in  operation  in  Silesia.  At  the 
outset  it  was  designed  specially  for  the  nobility 
who  possessed  the  great  landed  estates,  but 
eventually  the  peasants  were  also  provided  for. 
'The  King  felt  compelled  to  order  the  no- 
bility to  adopt  the  system,  because  the  condi- 
tion of  Prussia's  agriculture  was  deplorable 
and  its  future  at  stake.  The  other  states  of 
what  is  now  the  German  Empire  soon  followed 
the  lead  of  Prussia. 

It  was  originally  merely  a  crude  method  by 
which,  through  associations  of  all  the  landed 
gentry  in  the  several  sections,  these  could,  by 
guaranteeing  each  other,  obtain  loans  at 
reasonable  rates.  The  associations  thus 
created,  called  "  Landschaften, "  issued  bonds 
on  the  mortgages  securing  the  loans. 

Then  came  the  creation  of  joint-stock 
companies  for  the  purpose  of  making  these 
loans,  the  earliest  dating  from  1832,  located  in 
Bavaria.  Legislation  was  then  passed  to 
regulate  the  business,  and  so  far  did  the 
governments  intervene  that  in  some  states 
some  of  the  officials  of  the  organizations  are 
treated  as  public  ofiicers.  Legislation  on  the 
other  hand  provides  that  the  bonds  issued  by 
the  associations  and  corporations  are  to  be 
available  for  investment  of  trust  funds. 

At  first  the  amortization  feature  was  not 
included;  eventually  the  amortization,  or 
instalment  payment  of  the  principal,  became 
the  most  important  feature. 

This  system  is  to  be  regarded  as  entirely 
distinct  from  the  agricultural  improvement 
banks  and  the  local  co-operative  banks  under 
the  Raiffeisen  and  the  Schulze-Delitzsch  plans. 
All  these  latter  were  created  for  short-term 
loans,  not  made  on  the  lands  but  upon  personal 
property,  such  as  implements,  cattle,  etc.,  and 
on  the  credit  of  the  borrowers.  These  are  of 
the  highest  importance,  but  will  be  dealt  with 
in  a  separate  chapter. 

Besides  the  above  mentioned  banks  there 
are  in  Germany,  23  land  mortgage  credit 
banks,  16  mortgage  credit  banks,  3,000  sav- 
ings banks,  31  insurance  institutions,  working 
along  agricultural  improvement  lines. 


Originally,  mortgage  loans  were  limited  to 
one-half  of  the  value  of  the  property;  in  later 
years  the  limit  was  raised  to  two- thirds;  as 
values  are  based  in  part  on  appraisal,  part  on 
the  assessment  valuation  for  taxation,  they 
are  readily  and  accurately  determinable.  In 
recent  years  the  system  has  been  extended  to 
loans  on  city  property  as  well. 

The  borrower  in  some  cases  receives  the 
bonds,  which  he  must  sell  in  the  market;  in 
other  cases  he  receives  cash;  in  other  cases 
still  the  bank  will  negotiate  the  sale  of  the 
bonds  for  the  borrower  for  a  small  commis- 
sion. A  market  is  made  for  the  bonds  on 
the  stock  exchanges. 

Terms  of  loans  are  from  10  to  75  years. 
To  the  net  interest  charge,  now  as  low  in 
many  cases  as  3 34  P^r  cent.,  there  is  added 
the  ascertained  amortization  rate,  determined 
by  the  number  of  years  to  run;  to  this  is 
further  added  one-quarter  to  one-half  per 
cent,  for  expenses,  and  in  a  few  places  a  small 
fraction  to  cover  emergencies,  losses,  etc. 

The  borrower  may  anticipate  his  instal- 
ment payments.  Foreclosures  are  so  few  as 
to  be  almost  negligible.  Laws  now  also  permit 
the  release  from  debt  to  the  extent  that  pay- 
ments are  made,  after  10  per  cent,  has  been 
paid  on  the  principal;  in  some  instances  this 
is  permitted  to  lay  the  basis  for  a  further 
credit. 

In  1873  there  was  formed  a  sort  of  federation 
of  nine  of  the  associations  for  the  purpose  of 
providing  greater  facilities  for  placing  the 
bonds.    This  has  proved  very  useful. 

In  all,  the  bonds  created  by  the  land- 
mortgage  banks  represent  a  total  of  $2,000,- 
000,000.  The  Bavarian  Hypothek  Bank, 
organized  in  the  thirties,  has  increased  its 
capital  seven-fold,  being  now  about  $14,000,- 
000;  its  shares  have  a  value  of  over  300, 
since  its  dividends  range  about  13  per  cent, 
annually. 


ii. 


"    t- 


NINETEENTH 
CENTURY  CULTIVATION 


The  Landschaften 


THE  oldest  form  of  land  bank,  or  to 
use  a  more  correct  term,  co-operative 
society  of  land  owners,  is  the  Land- 
schafi  (Land  Society)  of  Germany. 
The  object  of  the  society,  whose  operations 
are  generally  confined  to  a  province  or  other 
administrative  unit,  is  to  obtain  for  its  mem- 
bers long  time  credit  required  for  land  improve- 
ment, by  sale  of  bonds  collectively  guaranteed 
by  the  landowners  of  the  province.  The  idea 
has  been  tested  by  a  hundred  and  forty  years 
of  success  and  there  are  now  in  Germany  25 
of  these  societies  which  have  outstanding  over 
$700,000,000  in  mortgage  loans  on  farms.  In 
fact,  in  the  most  critical  times,  agricultural 
credit  has  been  more  stable  than  that  of  the 
State,  for  the  latter  came  to  the  East  Prussian 
Landschaft  in  1808  and  1809  to  raise  part  of 
the  military  contribution,  by  the  issue  of 
mortgages  on  its  forests  and  domains. 

The  German  mortgage  banks  have, 
however,  outstripped  the  Landschaften  in  vol- 
ume of  business,  the  reason  no  doubt  being  in 
the  fact  that  the  latter  are  purely  mutual 
concerns,  operated  without  profit,  while  the 
mortgage  bank  has  in  it  the  element  of  gain 
so  necessary  in  making  financial  concerns 
grow.  The  Landschaft  is  simply  the  inter- 
mediary between  the  farmer  who  seeks  credit 
and  capital  that  seeks  investment,  asking  noth- 
ing for  its  service  but  the  cost  of  getting  the 
two  together.  In  fact  both  the  Hypotheken- 
bank  and  the  Landschaft  substitute  a  mort- 
gage system  {Pfandbrief system)  for  individual- 
istic borrowing  and  lending.  The  success  of 
the  Landschaft  is  due  to  three  principles: 
(a)  The  debenture  bond  (Pfandhrief) ;  (b) 
the  amortization  of  loans,  which  has  a  two- 
fold value,  in  that  it  lessens  the  debtor's  obli- 
gation year  by  year  and  increases  the  credi- 
tor's security;  (c)  the  sinking  fund  for  bond 
redemption;  to  which  might  be  added,  as 
already  indicated,  the  co-operative  guaranty, 
which  is  the  historical  foundation  on  which 
the  Landschaft  system  has  developed. 

The  three  principles  mentioned  form  the 
groundwork  for  any  mortgage  bank,  whether 
State,  as  in  the  Credit  Fonder,  or  private,  as 
in  the  Hj^otheken-banken  of  Germany.  Mod- 
ified forms  of  the  Landschaft  exist  in  Russia, 
Austria,  Swdtzerland,  Denmark  and  Roumania, 
while  Hungary  has  one  of  the  original  type. 

Historical  and  Theoretical 

The  origin  of  the  Landschaften  idea  has 
already  been  mentioned.  Herr  Biihring's  plan 
was  based  on  the  well-known,  but  too  often 
forgotten  fact  that  in  the  land  is  the  nation's 


greatest  wealth.  But  in  order  to  make  this 
asset  profitable  and  productive  to  the  highest 
degree,  it  must  be  worked  to  "the  limit,"  but 
not  to  the  point  of  depleting  its  creative  pow- 
ers. It  must  have  the  third  factor  in  produc- 
tion— capital,  applied  to  it.  In  view  of  the 
fact  that  capital  invested  in  land  can  only  be 
regained  to  the  owner  by  the  productiveness 
of  the  soil,  the  principal  of  any  loan  that  may 
be  made  on  landed  security  can  only  be  repaid 
out  of  the  income  by  slow  degrees — amortized, 
to  use  the  technical  term,  over  a  period  of 
years.  To  obtain  this  capital,  he  would  issue 
bonds,  secured  by  mortgages,  which  in  turn, 
are  secured  by  the  equity  in  the  land,  plus  a 
collective  guaranty  of  payment  of  all  who 
joined  the  society.  In  other  words,  the  prom- 
ise of  the  Landschaft  to  pay  the  face  of  the 
bond  to  the  owner  thereof  is  secured  by  the 
promise  of  the  mortgagor  to  pay  to  the  soci- 
ety; and  both  promises  (individual)  are  re- 
inforced by  the  collective  guaranty  to  pay 
if  the  primary  debtors  do  not. 

As  a  general  rule  the  good  will  not  guarantee 
the  bad  or  even  doubtful;  but,  if  the  bad  are 
not  in  evidence,  the  collectively  good  may  be 
persuaded  to  guarantee  the  obligations  of  the 
individually  good.  In  this  instance,  the  land- 
owners, whether  of  a  borrowing  turn  of  mind 
or  not,  were  forced  to  join  the  society  and 
July  9,  1770,  saw  the  birth  of  the  first  of  these 
societies,  the  Generallandschaft  of  Silesia,  and 
success  has  followed  the  idea  ever  since.  In 
fact,  any  co-operative  mov^ement  seems  to 
succeed  in  Germany,  there  being  a  co-operative 
society  for  every  2,600  of  the  population  and  a 
co-operative  bank  of  some  sort  for  every  i  ,600. 

The  Landschaften  are  distinguished  as  "old" 
and  "new,"  the  old  being  formed  largely  of 
the  nobility  and  sometimes  designated  "Rit- 
terschaften,"  the  original  society  at  Silesia 
being  still  in  existence.  The  Kur-und-Neu- 
markischc  Landschaft  for  the  nobility  of 
Brandenburg  was  created  in  1777;  Pomerania 
in  1781;  West  Prussia  in  1787;  East  Prussia 
in  1788;  thus  showing  the  age  of  these  societies. 

Four  of  these  five  mentioned  societies  are 
composed  of  several  co-operative  societies,  or 
of  several  almost-independent  administrative 
sections.  In  Silesia  each  society  disposes  of 
a  separate  fund  and  the  obligations  are  cov- 
ered by  the  double  guaranty,  first  of  the  soci- 
ety, and  then  by  the  Landschaft  of  the 
province.  The  five  were  all  formed  by  the 
State.  Of  ten  others  in  Prussia,  nine  were 
formed  by  the  Provinces  and  one  by  individ- 
uals. Three  in  Hanover  do  not  issue  bonds, 
but  lend  cash  advanced  by  capitalists. 


AGRICULTURAL  CREDIT   BANKS 


AGRICULTURAL   CREDIT  BANKS 


Administration 

The  business  of  the  Landschaften  is  under 
State  inspection,  being  entrusted  in  the  first 
instance  to  the  president  or  prefect  of  the 
Province;  and,  secondly,  to  the  Prussian 
Minister  of  Agriculture,  Domains  and  Forests. 
The  officials  are  indirectly  employees  of  the 
State,  are  subject  to  a  code  of  discipline  and 
enjoy  the  privilege  of  State  officials  regarding 
taxes,  and  generally  have  power  to  sign  cer- 
tain public  documents,  certify  as  to  titles, 
and  make  \aluations.  The  executive  author- 
ity is  vested  in  a  board  of  directors,  a  board 
of  representatives,  constituting  a  board  of 
appeals  from  the  decisions  of  the  directors,  and 
the  highest  court  of  appeals,  the  general  assem- 
bly of  landowners  presided  over  by  royal  com- 
missioners. 

The  syndics  (those  qualified  for  the  office 
of  judge  and  who  have  notarial  powers)  and 
subordinate  officials  receive  full  salaries.  The 
fees  of  the  board  of  directors  are  based  on 
the  time  given  to  the  work  and  expenses. 

Capital 

The  Landschaften,  like  all  mutual  institu- 
tions, have  no  capital,  issue  no  stock,  and  pay 
no  di\-idends.  The  members  are  responsible 
in  all  their  property,  for  all  borrowings  unless 
liability  is  limited,  as  generally  obtains  in 
the  new  Landschaften.  In  some  cases  only 
the  property  pledged  is  liable;  in  others,  a 
sum  proportionate  to  the  amount  borrowed, 
while  the  growing  practice  is  to  create  a 
reserve  fund. 

Reserve 

All  the  profits  are  carried  into  the  reserve. 
Some  societies  require  a  small  entrance  fee, 
which  is  also  carried  into  this  fund. 

Debenture  Bonds 

Originally  a  bond  was  given  by  the  Land- 
schaft  the  same  size  as  the  loan  granted, 
promising  to  pay  if  the  borrower  did  not. 
The  holder  had  to  foreclose  before  the  liabil- 
ity of  the  Landschaft  became  operative.  The 
loss  was  then  made  good.  Such  bonds  were 
not  "liquid,"  on  account  of  their  varying  size, 
and  had  limited  circulation  and  sold  below 
par.  Later  the  Landschaft  undertook  to  col- 
lect principal  and  interest — in  fact,  both  prac- 
tices were  in  substance  guaranteeing  the  loan 
after  the  manner  of  the  guaranteed  mortgages 
issued  by  our  title  companies  to-day.  Lastly, 
the  society  assumed  direct  responsibility,  paid 
the  borrower  either  in  bonds  of  small  denomi- 


nations or  in  cash.  The  borrower,  in  making 
application,  states  the  object  for  which  the 
loan  is  desired,  the  amount  wanted,  and  the 
length  of  time  which  the  loan  is  to  run. 
If  loan  is  granted  (and  he  cannot  be  denied 
one-half  the  value  of  his  land),  bonds  are  issued 
in  like  amount.  All  but  three  of  the  "old" 
Landschaften  pay  the  borrower,  not  in  money, 
but  in  bonds,  which  are  converted  into  money 
by  banks  making  a  feature  of  negotiating  such 
securities;  or  he  might  pay  his  debt  with 
these  securities,  which  are  generally  in  high 
favor  and  have  a  wide  market.  Should  the 
amount  be  insufficient  to  meet  the  borrower's 
needs,  on  account  of  the  discount,  a  short 
time  loan  may  be  made  from  the  society's 
available  funds.  If  cash  is  paid  the  borrower, 
and  bonds  are  selling  at  a  discount,  only 
proceeds  are  given;  if  at  a  premium,  only 
par  is  paid,  the  premium  going  into  the  re- 
serve. In  some  banks  if  cash  is  paid  the 
amount  is  regulated  by  the  market  price  of 
securities  at  the  time. 

The  outstanding  bonds  must  always  equal 
the  amount  unpaid  on  mortgages,  and  the 
security,  as  aforesaid,  is  the  mass  of  under- 
lying mortgages,  the  other  assets  of  the 
society,  the  sinking  fund,  surplus,  and  ulti- 
mately the  unlimited  liability  of  the  members. 
There  is  a  growing  tendency  to  limit  liability 
and  substitute  reserves.  The  bonds  are  pay- 
able to  bearer  and  are  redeemable  only  when 
drawn,  and  are  therefore  subject  to  call;  they 
are  legal  investments  for  trust  funds  and 
enjoy  as  high  credit  as  government  securities. 

As  the  body  of  landlords  possesses  real  es- 
tate of  enormous  value,  but  have  no  large  sum 
of  money  at  their  disposal,  they  secure  needed 
funds  by  these  bond  issues  secured  by  the 
collective  obligation  of  the  group.  The  cred- 
itor and  the  debtor  no  longer  deal  with  one 
another.  They  may  not  even  know  each 
other,  or  care.  The  investor  receives  his 
interest  from  the  Landschaft  and  the 
whole  estates  of  the  province  forms  his  secu- 
rity. The  bonds  circulate  as  freely  as  any 
security  can,  and  land  credit,  generally  slow- 
moving  or  dead,  has  in  the  highest  degree 
become  liquid. 

Loan  Methods 

The  ultimate  security  for  any  scheme  of 
land  banking  lies  in  the  quality  of  the  loans. 
They  must  first  of  all  be  productive;  there- 
fore no  vacant  lots,  held  for  a  land  boom;  no 
risky  ventures,  such  as  summer  hotels,  pleas- 
ure resorts,  etc.  Properties  with  limited 
utility  must  be  very  conservatively  valued, 
and  loans  upon  constantly  decreasing  security, 


i 


V 


'  ? 


8 


U 


such  as  a  mine,  quickly  amortized,  if  not 
frowned  upon  altogether.  The  one  security 
that  is  most  free  from  criticism  is  the  well- 
managed  farm,  and  the  Landschaft  was  pri- 
marily organized  to  lend  on  farm  security. 
In  any  event  the  crux  of  the  whole  matter 
is  the  appraisal,  which  value  may  be  arrived 
at  from  the  assessment  valuation  or  inde- 
pendent appraisal,  generally  35  times  the 
net  revenue  as  made  for  the  land  tax.  Fre- 
quently the  appraisal  is  based  on  the  produc- 
ing power  of  the  land.  Loans  are  restricted 
usually  to  one-half  estimated  value  as  made 
by  local  deputies,  but  two-thirds  is  permissible. 
Only  first  mortgages  are  taken,  and  term  of 
payment  by  the  borrower  is  optional. 

While  the  Landschaft  was  originally  in- 
tended; to  supply  the  large  landowners  only, 
with  credit,  some  have  extended  their  opera- 
tions to  the  small  proprietor  as  well.  Most 
of  the  later  societies  serve  both  classes,  and, 
in  this  case,  there  is  a  limit  to  the  minimum 
value  of  land  that  may  be  mortgaged,  namely, 
that  amount  which  will  support  the  owner, 
generally  a  net  income  calculable  for  the  land 
tax  at  a  minimum  from  75  to  150  francs. 
The  Landschaft  of  Silesia  issues  special  bonds 
for  peasants'  lands.  In  the  new  Brandenburg 
Landschaft,  affiliated  with  the  old  Kur-und- 
Neumark  Landschaft,  loans  may  be  grant- 
ed on  propertv  having  net  income  of  only 
$25. 

The  Landschaft  of  East  Prussia  periodically 
sends  its  employees  into  the  villages,  who 
give  all  necessary  information  regarding  loans, 
and  receive  applications  for  such  borrowing. 

Loans  can  be  called  upon  waste  or  deterio- 
ration, and  the  Landschaften  have  a  quick  and 
inexpensive  method  of  foreclosure  without 
resorting  to  the  courts. 

The  mortgage  bonds  are  drawn  up  by  special 
commission  of  control  which  must  be  convinced 
that  an  equivalent  amount  of  mortgaged  prop- 
erty exists.  The  mortgage  document  is  pro- 
vided with  a  stamp,  so  that  the  keeper  of  the 
land  register  may  record  the  surrender  or 
redemption  of  the  mortgage  security  only  on 
proof  that  a  similar  amount  of  bonds  are  drawn 
from  circulation.  In  individual  Landschaften 
the  stamp  is  cancelled  by  the  commission  of 
control  itself,  under  like  conditions;  the 
newer  societies  place  the  responsibility  upon 
the  board  of  directors. 

Interest  Rates 

The  high  grade  security  offered  in  the 
Landschaft  has  made  low  interest  rates  possi- 


ble, and  the  rate  has  always  been  moderate. 
Five  per  cent,  prevailed  from  1868-1878,  but 
the  rates  vary  with  market  conditions,  the 
figures  usually  ranging  from  3  to  4  per  cent. 
The  old  5s  have  been  gradually  refunded  into 
3s  and  3|s.  The  interest  charged  the  bor- 
rower is  usually  from  ^  to  i  per  cent  higher 
than  the  society  pays  its  creditors,  the  differ- 
ence covering  expenses  and  constituting  the 
reserve  funds.  The  amount  paid  for  the 
amortization  of  the  loan  depends  upon  the 
length  of  the  time  it  has  to  run.  A  payment 
of  4  per  cent,  per  annum  would  be  divided  as 
follows:  For  interest,  3  per  cent.;  amorti- 
zation, I  per  cent.;  guaranty  fund,  j  per 
cent.;  expenses,  j  per  cent.  The  amortiza- 
tion period  is  usually  about  53  years,  and  the 
great  advantage  of  the  unrecallable  feature  of 
the  loan  is  that  the  borrower  gets  the  same 
rate  throughout  the  life  of  the  loan.  He  may 
take  advantage  of  a  fall  in  interest  rates,  but 
a  rise  cannot  afifect  him. 

Loan  Banks 

To  render  the  negotiation  of  bonds  easy, 
special  banks  have  been  created  in  connection 
with  the  Landschaften  and  under  their  control, 
with  no  intention  of  profit,  which  goes  to  the 
parent  institution. 

Therefore,  closely  affiliated  with  the  Land- 
schaften are  these  "loan  banks"  whose  chief 
function  it  is  to  finance  the  mortgage  business, 
such  as  the  sale  and  purchase  of  mortgage 
bonds,  payment  of  interest  on  the  same,  pay- 
ment of  cash  for  mortgage  bonds  allotted, 
advances  to  borrowers,  and  conv-ersion  of  pri- 
vate mortgages.  They  also  receive  deposits, 
and  furnish  temporary  credit  to  borrowers. 
They  are  endowed  from  the  Landschaft  fund, 
and  pay  from  6  to  10  per  cent,  dividends.  The 
net  earnings  not  turned  into  the  reserve  fund 
of  the  bank  go  to  the  Landschaften. 

From  the  Landschaften  proper  are  to  be 
distinguished  the  mortgage  banks,  elsewhere 
treated,  which  carry  on  a  mortgage  loan 
business  for  their  own  profit,  and  also  the 
state  or  communal  land  credit  institutions, 
agricultural  banks  {Landkulttirrentenbankcn) 
(q.  V.)  provincial  auxiliary  banks  (Provincial 
Hilfskassen),  agricultural  credit  banks  (Landes- 
krediikassen),  etc.  These  institutions  take  the 
place  of  the  Landschaften  in  those  sections 
where  the  latter  are  wanting  or  but  feebly 
developed.  They  are  not  independently  man- 
aged, but  operated  either  by  the  State,  the 
province,  or  communal  union,  for  the  purpose 
of  giving  aid  to  agricultural  development. 


German  Mortgage  Banks 

( HYPOTHEKENBANKEN ) 


THE  German  Mortgage  Banks  are  stock 
corporations.    In  addition  to  the  sub- 
scribed capital,  surplus  and  earnings, 
funds  are  obtained  by  the  sale  of  bonds 
in  the  open  market,  and  with  the  proceeds 
real  estate  loans  are  made.     The  security  to 
the  bondholders  consists  of  the  capital  of  the 
bank,  the  surplus  fund,  the  obligations  of  the 
mortgagors,  reinforced  by  the  equity  in  the 
pledged  property;  all  of  which  are  additionally 
safeguarded  by  a  system  of  careful  inspection. 
The  care  exercised  in  granting  loans  and  the 
general  high  order  of  the  management  have 
placed  the  obligations  of  these  companies  on 
a  high  plane  of  excellence.    There  are  many 
such  in  Germany,  and  a  review  of  the  general 
principles  regarding   their  operation  will  be 
sufl5cient  to  give  a  clear  conception  of  this 
form  of  land  finance.    The  volume  of  business 
of  these  banks  is  enormous  and  they  have  out- 
stripped  their   old  rivals,  the  Landschaften, 
''five  to  one,"  for  the  reason,  it  would  seem, 
that  the  stock  company  is  more  in  keeping 
with  the  times  than  mutual  co-operative  con- 
cerns, however  good  the  latter  may  be.    They 
now  have  out  on  mortgage  loans  more  than 
$2,618,000,000,  or  5  times  the  loans  of  the 
Landschaften.    Theoretically  the  outstanding 
loans  and  bonds  should  exactly  balance;  in 
practice  they  do  not,  the  capital  and  surplus 
forming  the  margin  of  safety  for  the  fluctua- 
tions.    Of  all  the  land  bank  systems  of  the 
world,  this  would  seem  best  adapted  to  the 
United  States,  provided  the  plan  of  operation 
can  be  national  in  scope.     The  German  law 
was  formed  to  overcome  the  conflict  of  authority 
between  sovereign  states,  and  had  the  same 
obstacles  to  overcome  that  accrue  to  a  nation 
made  up  of  independent  units  such  as  obtains 
in  the  United  States. 

The  capital  of  the  36  mortgage  banks  in 
Germany  is  now  over  $170,563,000,  the  reserve 
fund  $66,711,400,  the  smallest  capitalization 
being  $258,000  and  the  largest  $14,000,000. 
The  dividends  run  from  6  to  14  per  cent. 
The  Hability  may  be  limited  or  unHmited. 

These  banks  are  chartered  by  the  Federal 
Council,  unless  the  business  is  to  be  confined 
to  a  single  state,  when  the  state  authorities 
grant  the  consent,  and  are  subject  to  govern- 
ment supervision,  by  the  inspector  of  the  state 
where  the  head  office  is  located.  These  in- 
spectors have  free  access  to  all  the  affairs  of 
the  bank  and  may  send  a  representative  to 
the  general  meeting  of  stockholders,  and  to 
sittings  of  the  boards  of  directors.  They  also 
approve  the  appointment  of  auditor  and  his 


assistant  who  are  charged  with  the  duty  of 
seeing  that  debentures  are  properly  issued. 
Loans  are  restricted  to  real  estate  in  Ger- 
many, first  mortgage  only,  not  to  exceed  60 
per  cent,  of  the  value  of  the  property,  estimated 
at  its  selling  price,  the  income,  when  properly 
managed,  being  paramount  consideration. 

Each  mortgage  that  secures  a  like  amount  of 
bonds  shall  be  recorded  with  complete  details 
in  a  special  register.  In  the  first  month  of 
each  calendar  half  year,  the  auditor  shall 
certify  to  the  inspecting  authorities  the  mort- 
gages which  have  been  recorded  during  the 
preceding  six  months.  Each  bank  has  an 
auditor  and  assistant,  appointed  through  the 
inspecting  authorities  after  consultation  with 
the  bank. 

The  auditor  shall  satisfy  himself  that  the 
mortgages  used  as  cover  have  been  duly 
entered  in  the  mortgage  register,  and  shall 
certify  on  each  mortgage  bond  before  issued 
that  the  cover  exists,  and  has  been  recorded. 
The  auditor  is  custodian  of  the  mortgage 
papers,  cash  paid  in  redemption  of  loans,  and 
is  responsible  for  their  proper  care.  He 
inspects  the  books  and  entries  of  the  bank  in 
so  far  as  they  concern  the  mortgage  loans. 
Auditors  are  subject  to  the  provisions  of  the 
Code  in  case  of  betrayal  of  their  trust.  Penalty 
for  over-issue  of  securities  is  a  year's  im- 
prisonment and  $5,000  fine.  Severe  punish- 
ment is  provided  for  failing  to  deliver  to  the 
auditor  cash  paid  on  loans,  and  to  observe  the 
provisions  of  law  relative  to  the  business. 

The  total  issue  of  mortgage  bonds  shall  not 
exceed  the  total  amount  of  mortgages,  one- 
half  of  which  shall  be  amortized  mortgages 
with  a  yearly  amortization  of  not  less  than 
^  of  I  per  cent.  Property  taken  under 
mortgage  debt  can  only  be  used  as  cover  for 
one-half  the  purchase  price  by  the  bank. 
Mortgages  paid  up  before  due  and  not  replaced 
immediately  shall  have  substituted  for  them 
government  bonds,  state  bonds  or  cash,  the 
bonds  being  valued  at  5  per  cent,  below  the 
quoted  prices. 

The  total  issue  of  bonds  shall  not  exceed 
15  times  the  paid  up  capital  and  reserve. 
Bonds  now  in  circulation  amount  to  over 
$2,548,000,000  with  interest  at  35^  to  4  per 
cent.  The  average  return  on  loans  is  from 
4.22  to  4.33  per  cent.  Mortgages  on  building 
lots  and  uncompleted  buildings  producing  no 
revenue  shall  not  be  used  as  cover  for  bonds 
for  more  than  one-tenth  of  the  total  value  of 
such  mortgages,  and  shall  not  exceed  one-half 
the  paid  up  capital  of  the  bank. 


0.  >- 

( 


b\ 


,^ 


Co-operative  Agricultural  Credit  Systems 


10 


ALL  schemes  of  co-operative  agricultural 
Z\  credit  intended  to  assist  the  farmer 
J.  \.  by  short  time  loans,  are  based  upon 
the  plan  of  the  village  or  rural  banks 
of  Germany,  commonly  called  "Raiffeisen 
banks,"  to  distinguish  them  from  somewhat 
similar  institutions  that  confine  their  operations 
to  larger  places,  and  cater  particularly  to  the 
small  merchant  and  tradesman,  and  which  are 
designated  as  "popular"  or  Schulze-Delitzsch 
banks.  These  village  banks  have  had  their 
largest  growth  in  Germany,  the  place  of  their 
inception,  and  wherever  are  found  conditions 
such  as  are  incident  to  peasant  Hfe,  small 
holdings,  scarcity  of  capital,  usury,  and  a 
general  disposition  to  co-operate,  they  have 
fulfilled  their  mission  admirably.  Raifi'eisenism 
is  not  for  the  large  landowner,  but  the  "little 
fellow"  to  whom  small  things  are  great. 

The  underlying  idea  is  the  collective  guar- 
anty of  loans,  each  member  becoming  respon- 
sible in  all  his  property  for  the  debts  of  the 
bank,  which  feature  is  generally  spoken  of  as 
the  "unUmited  liability." 

Loanable  funds  are,  in  the  main,  secured  by 
deposits,  fully  85  per  cent,  of  the  working  cap- 
ital being  so  obtained.  These  deposits  are 
made  by  the  thrifty  and  non-borrowers,  and 
those  interested  (as  many  are)  in  a  good  cause 
— at  four  per  cent.  Or,  the  funds  may  be 
collectively  borrowed  from  joint-stock  banks, 
as  in  Ireland,  to  be  individually  loaned. 

Having  in  one  form  or  another  secured 
working  capital  (never  by  the  issue  of  bonds 
as  in  the  Landschaften,  mortgage  banks,  or 
Credit  Fonciers),  the  group  must  be  able  to 
lend  safely  and  at  a  rate  slightly  in  excess  of 
the  cost.  The  expenses  must,  therefore,  be 
minimized  and  losses  reduced  to  a  negligible 
quantity — quite  the  universal  experience.  The 
management  must  be  eleemosynary,  after  the 
(old-time)  manner  of  our  mutual  savings 
banks,  profits,  if  any,  being  a  secondary  con- 
sideration to  safety  and  service. 

The  need  is  not  generally  as  pressing  for 
long  time  loans  as  for  credit  for  temporary 
purposes,  the  greatest  good  to  the  greatest 
number  coming  from  the  latter  form  of  credit. 

In  co-operative  credit  operations  of  the  lat- 
ter class,  it  is  needful  that  the  following 
principles  be  observed: 

(a)  The  membership  must  be  selected,  not 
"select,"  Inasmuch  as  the  rule  is,  "all  for 
one  and  one  for  all,"  the  trustworthy  only 
can  be  admitted;  and  since  ever>^  member  is 
a  possible  borrower,  he  must  be  a  good  member 
or  he  becomes  a  poor  borrower. 

(b)  The  territory  must  be  restricted,  so  that 


the  personal  equation  may  be  much  in  evi- 
dence; for  the  inspection  system,  which  has 
proven  a  bulwark  of  safety,  depends  upon 
intimate  knowledge  of  borrowers,  their  habits 
and  their  trustworthiness. 

(c)  The  money  must  be  loaned  only  for 
productive  purposes,  which  will  bring  in  a 
return  sufficient  to  repay  the  loan,  the  interest 
charge,  and  leave  a  profit  to  the  borrower. 

The  purpose  of  the  loan  must  not  only  be 
productive,  but  must  be  carried  out,  and  the 
"committee  of  inspection"  will  see  that  this 
rule  is  observed;    therefore, 

(d)  Close  and  constant  watch  is  maintained 
on  all  borrowers  to  see  that  credit  facilities 
are  not  abused.  By  reason  of  this  feature 
the  losses  have  been  eliminated.     Lastly, 

(e)  The  borrower  must,  except  in  rare  in- 
stances, furnish  sureties. 

Not  every  loan  has  all  these  desirable  at- 
tributes, but  some  combination  of  these 
principles  must  exist  to  make  the  risk  safe 
according  to  the  co-operative  idea  of  credit. 
MisappHcation  of  funds  is  financial  suicide, 
and  the  inspection  system,  which  would  seem 
to  savor  of  espionage,  seldom  results  in  a 
hurt,— it  is  like  the  strap  behind  the  door, — 
there  all  the  time  to  enforce  obedience,  but 
seldom  used. 

Prompt  payment  is  insisted  upon,  and  busi- 
ness principles  constantly  instilled  into  the 
minds  of  the  members. 

Over  and  above  all  these  principles  and 
precepts,  and  locking  them  together,  is  the 
unlimited  liability  feature  (considered  by 
many  the  keynote  of  the  success  attained), 
whereby  each,  by  pledging  himself  and  his 
property  "up  to  the  hilt,"  makes  the  combined 
credit  so  good  that  it  not  only  becomes  cheap, 
but  the  liabiUty  seldom,  if  ever,  called  into 
play.  Ninety-two  per  cent,  of  the  German 
banks  are  of  the  unlimited  sort.  Also,  may  be 
mentioned  as  desirable,  but  not  necessary,  an 
intense  rehgious  atmosphere,  generated  by  a 
code  of  moral  and  educational  doctrines. 

Conditions  favorable  to  co-operative  agri- 
cultural credit  existing  in  Italy,  France,  India, 
Austria-Hungary,  and  Ireland,  this  form  of 
banking  has  succeeded.  Next  to  Germany  it 
has  had  its  most  notable  achievement  in  Italy. 
In  Ireland  it  has  now^  become  firmly  established, 
and  in  France  it  has  had  a  fair  measure  of 
success.  Canada  has  a  few  scattered  societies, 
while  in  Massachusetts,  after  four  years, 
there  are  but  33  societies.  A  few  Jewish 
colonies  in  New  York  and  Connecticut  are 
experimenting  with  the  idea,  while  in  England 
it  has  never  seemed  to  "fit." 


II 


The   Village   Banks 

(RAIFFEISEN    BANKS) 


NATURE  was  unkind  to  the  bleak  for- 
est district  of  Westerwald,  Germany. 
The  soil  was  poor,  the  people  were 
poorer.  They  were  ill-clad,  ill-housed, 
ill-fed,  ill  brought  up,  and  barely  eked  out 
a  miserable  existence.  To  their  poverty  was 
added  famine,  which  swept  o\er  the  country 
in  1846-7,  leaving  its  trail  of  desolation. 

The  usurer  was  there  to  take  advantage  of 
the  situation,  and  soon  the  peasantry'  were  at 
his  mercy.  Ever^-^  cottage  was  mortgaged; 
most  of  the  cattle  belonged  to  the  Jewish 
money-lenders;  work  was  scarce;  crops  poor, 
and  ruin  stared  the  poor  folk  in  the  face.  It 
was  a  usurer's  hell. 

A  Moses  appeared  on  the  scene  and  in  the 
person  of  the  half-blind  burgomaster,  Freder- 
ick Wilhelm  Raiffeisen,  led  the  people  into  a 
promised  land.  He  capitalized  honesty  and 
thrift  and  made  it  a  business  asset.  He  com- 
mercialized co-operation  and  made  it  practi- 
cal. He  first  introduced  a  co-operative  baker)'; 
then  a  co-operative  cattle-purchase  associa- 
tion, "attacking  the  Jews  in  their  stronghold;" 
but  they  still  held  their  bonds  and  mortgages. 
He  gathered  81,500  together  with  no  little 
efiFort  and  set  up  his  "village  bank"  and 
offered  the  peasantry  money  for  all  their 
needs — provided  they  would  subscribe  to  his 
rules.  From  this  humble  beginning  the  idea 
has  grown  until  it  embraces  the  world. 

Growth 

The  movement  properly  dates  f'om  1849. 
The  second  bank  did  not  form  until  1854; 
the  third  in  1862;  the  fourth  in  1868.  In  1880 
the  idea  began  to  spread  rapidly,  there  being 
in  Germany  alone,  1,729  banks  in  1890,  in- 
creasing to  over  17,000  in  19 13,  with  a  million 
and  a  half  members.  The  annual  "turn  over" 
is  enormous,  b.eing  over  $2,000,000,000. 

In  the  drought  year  (1893)  they  did  more  to 
help  the  farmer  than  the  State.  The  latter 
simply  helped  him;  the  co-operative  banks 
helped  him  to  help  himself — a  much  better 
proposition. 

The  members  are  farmers,  usually  peasant 
proprietors.  The  minimum  number  required 
to  organize  a  society  is  seven.  The  average  in 
Germany  is  ninety-two  per  bank,  the  largest 
number  in  one  society  being  1,400. 

Capital 

Raiffeisen  would  have  no  initiation  fee  or 
capital  stock,  so  the  poorest  could  join;  but 
share  subscriptions  and  dividends  were  made 
compulsory,  in  1876,  by  law;  compliance  with 


which  was  made  possible  by  making  the  share 
value  nominal — 10  marks  and  voting  all  divi- 
dends to  reserve,  the  '^stiftungsfond." 

The  co-operative  bank  being  primarily  for 
the  poor,  and  operated  with  the  idea  of  service, 
not  profit,  the  principle  of  share  capital  is, 
therefore,  foreign  to  its  purpose,  and  until 
1876,  as  above  stated,  no  shares  were  issued. 
The  Darmstadt  Federation  has,  however,  rec- 
ommended shares  not  higher  than  500  marks, 
but  in  few  cases  does  the  share  exceed  100 
marks.  In  1909  the  paid-up  capital  per  mem- 
ber was  19  marks,  but  the  amount  varies  with 
the  locality.  Where  the  liability  is  unlimited 
a  member  cannot  take  more  than  one  share; 
where  the  liability  is  limited  he  may  take 
many.  The  value  and  the  number  are  fixed 
by  the  rules.  Shares  are  repayable  upon  with- 
drawal from  the  society  and  interest  is  allowed 
at  a  rate  not  exceeding  the  rate  paid  by  bor- 
rowers. As  a  rule,  no  entrance  fee  is  charged, 
but  the  Darmstadt  Federation  allows  a  small 
entrance  fee  which  is  immediately  carried  to 
reserve. 

The  working  capital  is  composed  of  (a) 
share  capital,  which  in  1909  contributed  1.2 
per  cent,  of  the  total  available  funds;  (b)  re- 
serve, 2.6  per  cent,  of  the  total  being  in  the 
nature  of  undivided  profits,  or  sur]>lus;  (c) 
deposits  on  current  account,  which  constituted 
9.8  per  cent,  of  the  total;  (d)  savings  accounts 
which  formed  75.2  of  the  total;  (e)  loans  from 
central  banks  and  other  sources.  These 
amounted  to  11.2  per  cent,  of  the  whole.  It 
will  thus  be  seen  that  a  large  part  of  the 
working  funds  is  accumulations  of  the  mem- 
bers, fully  85  per  cent,  being  so  obtained,  out 
of  over  two  billion  marks  placed  at  the  disposal 
of  the  German  farmers.  The  business  is 
therefore  carried  on  on  very  slender  capital  and 
according  to  financial  ethics,  "top  heavy"; 
but  the  unlimited  liability  cures  this  defect. 

Management 

The  management  is  as  simple  as  it  is  effec- 
tive. The  administration  devolves  upon  the 
following:  (a)  Committee  of  Management 
(usually  consisting  of  five);  (b)  Council  of 
Supervision  (which  audits  accounts  and  super- 
vises); and  (c)  General  Meeting  (which  elects 
the  foregoing).  The  executive  work  is  done 
by  the  treasurer,  who  is  the  only  salaried  em- 
ployee, and  a  typical  "bank"  is  a  corner  in 
some  farmer's  house  (or  barn)  with  the  treas- 
urer the  only  attendant,  sitting  two  or  three 
times  a  week.  Appointing  power  for  the  so- 
ciety rests  with  the  General  Meeting,  which 


^ 


M; 


xa 


AGRICULTURAL  CREDIT  BANKS 


names  the  Committee  of  Management,  the 
Council  of  Supervision,  and  the  Treas- 
urer. The  conduct  of  the  business  rests  upon 
the  Committee  of  Management,  composed  of 
the  best  people  in  the  district.  In  1909  the 
expenses  averaged  but  638  marks  per  bank, 
running  from  an  average  of  244  in  one  section 
to  1400  in  another. 

Loans 

The  business  of  the  rural  banks  consists 
largely  of  loans  to  members,  membership  be- 
ing requisite  to  borrowing.  Loans  on  current 
account  constitute  28.3  of  the  total;  those  for 
fixed  periods  amounting  to  71.7  per  cent,  of  a 
total  outstanding  of  over  1,508,442,000  marks. 

Loans  are  made  on  furnishing  sureties,  de- 
posit of  valuables,  mortgage  security,  or  on 
mere  promise  to  pay,  the  former  being  pre- 
ferred. The  period  for  short  credit  runs  from 
six  months  to  three  years,  mortgage  loans 
extending  up  to  ten  years.  The  safeguards 
are  found  in  the  limited  scope  of  operation  and 
the  mutual  supervision. 

Dividends 

The  Raiffeisen  system  does  not  contemplate 
the  distribution  of  profits,  other  than  the  pay- 
ment of  interest  on  what  would  be  termed 
savings,  or  interest  bearing  accounts,  all  the 
corporate  profits  being  carried  to  reserve. 
Seven-eighths  of  the  profits  (8,000,000  marks) 
were  so  apportioned  in  1908-9.  On  dissolu- 
tion the  surplus  would  be  devoted  to  some 
public  purpose.  Where  shares  are  issued, 
a  dividend  not  to  exceed  the  maximum  inter- 
est charged  borrowers,  is  allowed,  in  no  case 
exceeding  4  per  cent.,  and  in  many  cases  no 
dividends  at  all  have  been  paid. 

Federations 

In  order  to  spread  the  co-operative  idea, 
federations  have  been  formed,  largely  after 
the  order  of  our  state  banking  associations. 
The  movement  needed  proper  direction  to 
make  it  effective  and  uniform  in  its  methods. 
These  federations  embrace  not  only  rural 
credit  societies,  but  rural  co-operative  soci- 
eties of  every  kind.  The  National  Federation 
of  German  Co-operative  Societies,  founded  in 
1883,  has  its  headquarters  at  Darmstadt,  and 
in  1905  absorbed  the  Federation  of  Agricultu- 
ral Co-operative  Societies  with  headquarters  at 
Neuwied,  formed  by  Herr  Raiffeisen  in  1877; 
and  there  is  now  but  one  federation,  which 
contained  on  June  i,  1910,  over  19,000  co- 
operative societies,  including  78  central  co- 
operative societies,  12,896  co-operative  credit 


societies,  2,077  co-operative  distributive  soci- 
eties, 2,028  co-operative  dairies  and  1,885  co- 
operative societies  of  other  sorts. 

The  societies  first  affiliate  themselves  with 
the  Provincial  Federations,  and  these  in  turn 
connect  themselves  with  the  National  Feder- 
ation. The  provincial  federations  embrace 
the  societies  in  a  given  district,  and  enjoy  a 
large  degree  of  autonomy. 

These  federations  are  supervising  bodies, 
employing  inspectors,  who  frequently  audit 
the  work,  supervise  the  methods  and  as  a 
whole,  carry  on  a  propaganda  of  organization 
and  instruction. 

In  1910  over  92  per  cent,  of  the  societies 
were  organized  into  federations,  there  being 
23,845  societies  in  all.  The  number  of  provin- 
cial federations  affiliated  with  the  National 
Federation  was  41. 

Central  Banks 

The  function  of  the  central  bank  is  to  con- 
trol the  flow  of  money.  When  the  local  soci- 
ety is  in  need  of  funds,  it  applies  to  the  central 
institution;  when  it  has  a  surplus  it  deposits 
with  it,  and  the  central  bank  therefore  acts  as 
a  regulator  or  balance  wheel  of  credit.  And 
in  this  regulation  it  does  not  conflict  with  the 
work  of  the  federations,  whose  functions  are  not 
capitalistic,  but  educational  and  supervisory. 
The  central  banks  are  usually  connected  with 
the  federation  of  the  district  through  the 
managing  officials,  who  are  generally  identified 
with  both. 

In  19 10  there  were  affiliated  with  the  Na- 
tional Federation  36  provincial  central  banks, 
and  in  a  broad  sense,  the  central  banks  per- 
form the  same  functions  for  the  rural  banks 
that  the  rural  banks  fulfill  for  their  members. 
Their  funds  come  from  the  deposits  of  the 
rural  banks  and  loans  from  general  central 
banks  or  Prussian  Central  Bank,  and  other 
banks  and  bankers,  the  largest  item  being  the 
deposits  of  the  members,  which  in  1910  formed 
71.3  per  cent,  of  the  total.  At  the  end  of  1909 
the  Provincial  Central  Bank  had  182,000,000 
marks  outstanding  on  loans. 

There  are  two  general  central  co-operative 
banks  which  extend  their  operations  over  the 
whole  Empire.  These  are  the  Central  Agri- 
cultural Loan  Bank  of  Germany,  with  head- 
quarters at  Berlin,  and  founded  in  1876  by 
Raiffeisen  and  the  National  Bank  for  Co- 
operative Societies  with  headquarters  at 
Darmstadt.  The  latter  deals  almost  exclu- 
sively with  36  provincial  central  banks,  while 
the  Berlin  bank  deals  with  about  4,400  rural 
banks  of  the  pure  Raiffeisen  tjqje  scattered 
over  the  whole  of  Germany. 


13 


The   Popular   Banks 

(SCHULZE-DELITZSCH     BANKS) 


IT  must  not  be  inferred  that  the  Raiffeisen 
banks  are  the  only  institutions  affording 
credit  facilities  of  the  co-operative  order, 
for  the  Schulze-Delitzsch  banks  ("urban" 
or  "popular"  banks  in  Germany  and  "Banche 
Popolari"  of  Italy)  have  had  phenomenal  suc- 
cess. While  the  village  banks  are  composed 
entirely  of  farmers,  the  popular  banks  include 
all  classes.  At  the  beginning  of  191 1  farmers 
and  farm  laborers  constituted  29  per  cent,  of 
the  membership,  while  artisans,  merchants 
and  manufacturers  formed  over  42  per  cent, 
of  the  total.  The  average  membership  in 
1910  was  639  per  bank. 

The  Schulze-Delitzsch  movement  began  in 
Germany  about  1850  simultaneously  with  the 
Raiffeisen  idea.  They  have  a  wide  range  of 
op)eration,  covering  broader  territory  than  the 
village  banks,  do  all  sorts  of  banking  busi- 
ness, and  are  particularly  intended  to  operate 
in  towns  and  cities.  They  can  hardly  be 
called  philanthropic  institutions,  the  idea  of 
the  founder  being  that  share  capital  was 
requisite  to  safety  as  well  as  their  greatest 
usefulness,  and  profit  should  be  the  legitimate 
result  of  the  co-operative  endeavor.  There- 
fore they  accumulate  considerable  capital 
(1,500,000,000  marks  at  the  end  of  1910,  an 
average  of  1,500,088  marks  per  bank)  and  dis- 
tribute fairly  high  dividends  to  stockholders, 
in  contrast  with  gratuitous  management,  nom- 
inal capital  and  no  dividends  in  the  Raiffeisen 
system. 

The  general  congress  of  Popular  Banks  in 
1896  recommended  shares  of  at  least  300 
marks,  subsequently  increased  to  500  marks, 
Umiting  the  Uability  to  three  times  the  amount 
of  the  shares.  The  average  share  capital  is 
about  360  marks.  The  liability  may  be  either 
limited  or  unhmited.  Out  of  939  banks  of 
this  character  in  1910  with  over  600,000 
members,  567,  or  60.3  per  cent,  were  of  the 
unlimited  sort,  although  limited  liability  is 
steadily  increasing.  The  share  capital  in  19 10 
constituted  14.8  per  cent,  of  the  total  resources, 
and  reserve  fund  6.5  per  cent. 

The  primary  purpose  of  these  banks  is  to 
grant  short  time  loans,  the  turn-over  in  1910 
being  over  4,000,000,000  marks.  The  security 
is  generally  personal,  not  real,  mortgage  loans 
forming  scarcely  10  per  cent,  of  the  total. 
Surplus  funds  are  deposited  with  other  insti- 
tutions or  invested  in  securities,  or  used  to 
purchase  acceptances.  In  19 10  the  sums  so 
deposited  amounted  to  61,000,000  marks,  se- 
curities 98,000,000  marks,  and  acceptances 
22,000,000  marks,  making  a  total  of  181,000,000 


marks  of  quick  assets.  In  1910  these  banks 
earned  8.60  on  their  capital,  distributing  the 
greater  part  as  dividends.  The  dividend  rate 
varies  from  5  to  7  per  cent.  In  1910,  nineteen 
banks  distributed  more  than  10  per  cent,  and 
one  25  per  cent.  The  total  business  of  these 
banks  amounted  to  13,566,182,463  marks  and 
the  loans  granted  during  the  year  totaled 
4,191,761,988  marks. 

A  great  majority  of  the  Schulze-Delitzsch 
banks  are  affiliated  to  32  provincial  federa- 
tions, which  in  turn  are  affiliated  with  the 
General  Federation  of  German  Co-operative 
Societies.  These  provincial  federations  include 
not  only  co-operative  credit  banks,  but  co- 
operative distribution  societies,  productive  so- 
cieties, and  co-operative  building  societies.  In 
191 1  there  were  1,514  co-operative  societies 
embraced  in  the  federations,  of  which  973 
were  credit  societies. 

Central  Banks 

The  need  of  central  bank  facilities  has  not 
been  as  apparent  in  the  popular  bank  move- 
ment as  in  the  case  of  the  village  banks,  the 
former  having  better  facilities  for  obtaining 
needed  assistance  in  the  open  market.  Up  to 
191 1  only  three  provincial  federations  had 
established  central  banks  whose  importance  is 
not  great. 

To  facilitate  the  movement  of  funds  in  and 
out  of  the  popular  banks  the  Dresden  Bank 
has  established  a  department  which  opens 
current  accounts  with  these  institutions,  act- 
ing as  sort  of  a  clearing  house. 

In  Austria  the  popular  banks  are  of  no 
great  consequence  in  agricultural  operations, 
being  supplanted  by  the  Raiffeisen  banks,  but 
in  some  instances  make  fairly  large  loans  to 
farmers.  The  small  loans  are,  therefore, 
made  e.xclusively  by  the  rural  banks.  In  19 10 
there  were  over  2,700  of  these  banks  in  Austria 
having  limited  and  588  with  unlimited  Ua- 
bility. The  membership  in  1908  was  over  a 
million  and  a  half. 

In  Italy  they  include  all  classes,  22  per  cent, 
being  small  farmers.  The  share  value  varies 
from  5  francs  up  to  100  francs.  They  are 
exceecUngly  popular  as  savings  banks  and 
allow  checking  privileges.  The  interest  paid 
on  deposits  runs  from  3  to  4  per  cent,  and  the 
rate  charged  on  loans  from  4  to  6  per  cent. 
The  credit  operations  take  the  form  of  loans, 
discount  of  bills,  collateral  loans,  guaranteed 
loans,  etc.  The  history  of  these  popular  banks 
particularly  in  Germany  and  Italy,  is  full  of 
romance  and  human  interest. 


14 


; 


^ 


Agricultural  Improvement  Banks 

(LANDESKULTUR-RENTENBANKEN) 


THE  agricultural  improvement  banks 
are,  as  their  name  implies,  public 
institutions  which  supply  the  neces- 
sary capital  for  carrying  out  agricul- 
tural betterments  by  means  of  loans.  They 
date  from  1861.  They  work  on  the  principle 
that  the  fertility  of  the  soil  can  be  greatly  in^ 
creased  by  the  application  of  capital,  such  ap- 
plication to  take  the  form  of  drainage  sys- 
tems, irrigation,  fertilization,  good  roads,  dykes, 
water  courses,  aids  to  navigation,  etc.  Such 
improvement  credit  must  naturally  be  for 
long  time,  so  that  the  loan  may  be  repaid  from 
the  enhanced  income. 

These  loans  are  essentially  second  mort- 
gages, and  cannot  be  handled  by  the  other 
land  credit  institutions.  In  Bavaria,  Saxony 
and  Hesse  they  are  state  institutions.  These 
banks  give  unrecallable  amortization  loans  for 
agricultural  improvement,  and  obtain  capital 
by  issuing  bonds  payable  to  bearer,  which 
are  gradually  redeemed  from  amounts  paid 
in  by  the  debtors. 

The  question  arises,  what  is  the  position  of 
the  first  mortgagee,  if  the  land  is  already 
mortgaged,  and  the  added  productiveness 
belongs  in  equity,  not  to  the  first  mortgagee 
but  to  the  Landeskultur-Rentenbanken? 
Not  only  is  the  first  mortgage  strengthened, 
but  the  German  laws  do  not  compel  the  mort- 
gage creditor  to  give  precedence  to  any  claim 
of  the  improvement  bank  for  improvements 
installed  by  the  owner  out  of  funds  supplied 
by  it.  In  the  case  of  Prussian  drainage  loans, 
and  all  Bavarian  loans  for  these  purposes,  de- 
tailed proceedings  are  provided  for  having 
interested  parties  declare  whether  or  not  they 


will  yield  precedence  to  the  claims  of  the 
Landeskultur-Rentenbanken,  and  those  who 
do  not  object  within  a  certain  time  are  assumed 
to  agree  to  the  grant  of  this  priority  privilege. 

Where  the  individuals  may  not  be  able  to 
make  use  of  this  form  of  credit,  by  forming  a 
corporation,  they  may  avail  themselves  of 
the  same;  for  the  obligations  arising  from 
membership  in  a  public  company  or  corporate 
body  take  precedence  over  existing  private 
debts.  It  is  therefore  provided  in  law  that 
Landeskultur-Rentenbanken  loans  may  be  made 
to  city  and  country  corporations  and  public 
companies  without  mortgage  security. 

In  order  to  safeguard  the  risk,  where  no 
legal  prior  lien  exists,  the  limit  of  loans  is 
fixed;  as  for  instance  in  Prussia  where  the 
limit  is  25  times  the  income  of  the  land  tax, 
or  one-half  the  value  of  the  real  estate  on 
special  appraisal,  the  increase  in  the  value 
resulting  from  the  enterprise  being  taken  into 
consideration.  The  security  is  considered  suffi- 
cient if  the  loan  is  less  than  three-fourths  the 
original  value,  or  one-half  the  resulting  value. 
Loans  are  made  in  either  cash  or  bonds  and  the 
principal  paid  by  amortization,  the  period  and 
payments  being  subject  to  agreement. 

The  guarantee  of  proper  use  of  the  money 
rests  in  the  case  of  corporations,  or  communal 
undertakings,  upon  the  public  nature  of  the 
borrowing  institution.  In  the  case  of  private 
borrowers,  the  general  ability  of  the  borrower, 
his  record  and  the  nature  of  the  improvements 
are  sufficient  safeguards.  In  some  cases  the 
plan  of  improvement  and  time  necessary  to 
complete  the  work,  together  with  probable 
cost,  is  submitted  with  the  application. 


The  Prussian  Central  Landschaft 


THE  Prussian  Central  Landschaft  be- 
longs   technically    to    the    mortgage 
banks   and   is   the   largest   of   these 
institutions.    The  society  was  founded 
in  Berlin  in  1870  for  the  purpose  of  granting 
land  and  communal  district  loans. 

The  Society  is  authorized  to  conduct  the 
following  business:  (a)  To  lend  money  on 
land  and  buildings  in  Germany  and  German 
Colonies,  for  fixed  periods  or  on  the  instal- 
ment plan,  (b)  To  lend  money  to  Prussian 
Provinces,  Towns,  Cities,  Improvement  Com- 
panies and  other  Prussian  public  corporations, 
(c)  To  lend  money  to  German  railroads  on 
pledge  of  the  road  as  security,  (d)  To  issue 
debentures  secured  by  the  above-named  obli- 
gations. 


A  number  of  credit  bank  undertakings  with- 
out risk  are  also  allowed,  but  the  acquisition 
of  land  is  permitted  only  in  special  cases. 

The  original  capital  was  36  million  marks, 
increased  from  time  to  time  until  now  it  stands 
at  44,400,000  marks,  which  may  still  further 
be  increased  to  60  million  marks.  On  the 
basis  of  36,000,000  marks  capital,  the  Society 
is  empowered  to  issue:  (a)  Central  Mortgage 
bonds  and  railway  debentures  up  to  20  times 
the  capital,  (b)  Communal  obligations  up 
to  24  times  the  amount  of  the  paid-up  capital, 
provided  this  figure  (24)  includes  class  "a." 

At  the  end  of  191 2  the  outstanding  obli- 
gations were  982,374,750  marks,  the  mortgages 
and  communal  loans  at  the  same  time  being 
1,021,727,553  marks. 


15 


■ 


L*i 


r    ^ 

< 


a: 

K 
U 


IT. 


AGRICULTURAL      CREDIT      BANKS 


1  ' 


Management 

The  management  of  the  Society  is  vested  in 
the  president,  assisted  by  three  directors. 
These  officials  are  elected  by  the  Council  of 
Administration  and  their  names  submitted 
to  the  Emperor.  The  Council  settles  all 
matters  which  are  not  within  the  powers  of 
the  president  and  the  three  directors.  The 
Council  now  consists  of  17  members,  elected 
by  the  General  Assembly  of  stockholders.  The 
latter  body  declares  dividends  and  has  power 
to  remove  the  chairman  and  the  Council. 

Mortgage  Loans 

The  mortgage  business  is  conducted  as 
follows: 

The  society  loans  only  on  property  the 
yield  of  which  is  permanent  and  certain. 
Mines  and  quarries  are  excluded.  Mortgages 
suitable  for  cover  for  mortgage  bonds  under  the 
mortgage  law  are  entered  in  the  mortgage 
register,  thus  separating  them  from  other 
assets  of  the  society,  for  the  better  protection 
of  the  mortgage  bond  holders. 

Loans  are  made  up  to  60  per  cent,  of  the 
value  of  the  property.  On  agricultural  property 
the  Umit  is  two- thirds.  Loans  are  also  made 
on  vineyards,  woods,  and  other  property 
whose  value  is  determined  by  productiveness, 
but  are  limited  to  one-third  the  value.  All 
loans  made  on  land  are  installment  or  amor- 
tized loans.  In  obtaining  a  loan,  the  applicant 
must  present  documents  showing  him  to  be 
the  owner,  maps,  proof  of  appraised  value, 
yield  in  grain,  tax  receipts,  etc.,  and  the 
policy  of  insurance.  If  this  evidence  is  satis- 
factory, formal  application  paper  is  made  out. 
The  appraisal  follows,  but  under  certain  con- 
ditions personal  inspection  is  not  required, 
but  usually  obtains.  The  principal  points  con- 
sidered in  the  appraisal  are:  The  location 
of  the  buildings  and  their  relationship  to  the 
property;  general  condition  of  the  soil;  the 
relation  of  the  tilled  soil  to  the  meadows  and 
pastures;  condition  of  the  buildings;  past  and 
present  inventories  of  the  estate;  whether 
present  buildings  are  in  keeping  with  the 
general  condition  of  the  property  and  whether 
of  sufficient  size.  Transportation  facilities, 
prices  for  crops  during  past  ten  years,  roads, 
distance  to  market,  salaries  of  employees, 
climate  and  general  working  conditions  are 
also  factors. 

When  all  these  features  have  been  considered 
and  passed  upon,  an  estimate  is  made  of  the 
value  and  the  amount  of  loan  is  determined. 
The  bank  pays  borrowers  in  cash. 

The  installments  (which  must  be  at  least 


one-half  of  one  per  cent,  yearly)  and  interest 
are  payable  semi-annually. 

The  society  cannot  demand  payments  at 
its  pleasure,  as  long  as  the  security  remains 
unimpaired.  The  amortization  plan  gradually 
reduces  the  debt,  prompt  payment  being  re- 
quired. In  case  of  lapse  the  society  may 
demand  the  principal  on  3  months'  notice. 

It  is  optional  with  the  debtor  to  pay  after 
ten  years,  at  once  or  gradually.  Tlus  proves 
advantageous  to  him,  for  when  interest  rates 
are  low  he  may  borrow  elsewhere,  and  when 
high  he  cannot  have  the  rate  raised. 

The  Prussian  Central  Landschaft  has  been 
endeavoring  since  its  organization  to  bring 
about  a  general  use  of  amortized  loans,  and 
the  satisfactory  experiences  with  this  method 
of  lending  show  that  this  principle  is  becoming 
very  popular.  Up  to  the  close  of  191 2  there 
had  been  made  10,510  amortized  country 
loans  amounting  to  273,802,270  marks. 

No  direct  tax  is  levied  on  banks  as  land 
credit  institutions,  but  as  stock  companies  the 
regular  taxes  are  paid.  The  mortgage  bonds 
and  coupons  are  traded  in  on  the  exchanges 
and  must  be  stamped  according  to  law. 

Supervision 

Governmental  supervision  under  the  law  of 
July  13,  1899  is  of  great  importance  in  the 
affairs  of  the  society,  the  business  being  super- 
vised by  a  government  commission  since  its 
formation. 

The  Prussian  Central  Landschaft  was  in- 
strumental in  enacting  the  present  mortgage 
bank  law  of  Germany,  the  principal  features 
of  which  are: 

Corporations  formed  to  lend  on  mortgage 
security  and  to  issue  debentures  against  the 
same  require  the  permission  of  the  govern- 
ment to  organize. 

Gk)vernmental  supervision  covers  all  phases 
of  the  banks'  business,  and  the  inspectors  have 
wide  powers  of  audit.  In  Prussia  the  super- 
vision is  under  the  Minister  of  Agriculture,  but 
the  active  management  rests  with  the  govern- 
ment representative.  In  Berlin  the  police 
president  supervises,  but  the  actual  work  is 
performed  by  bank  examiners,  whose  duty  it 
is  to  keep  the  operations  of  the  bank  wthin 
the  law,  test  the  transactions  and  periodically 
to  review  the  work  of  the  bank. 

The  supervising  board  is  empowered  to  do 
all  things  necessary  for  the  proper  protection 
of  the  bank  and  keep  it  within  the  law.  It 
may  prevent  the  execution  of  a  decision, 
withhold  dividends,  forbid  the  issue  of  deben- 
tures, and  exercise  other  powers  stipulated 
in  the  law. 


17 


«i 


I 


BAVARIAN   HVPOTHEK 

BANK,  iMUNICH 

( BAYERISCHE  HYPOTHEKEN- 

UND  WECHSEL-BANK 

IN  MUNICH ) 


f 


MAIN  BANKING  ROOM  —  ( K.\SSEXHOF  DER  KAUFMANNISCHEN  ABTEILUNG) 


DIRECTORS'  ROOM 
(DIREKTIONS-SITZUNGSSAAL ) 


I 


'  <; 


The  Bavarian  Mortgage  and  Exchange  Bank 

(BAYERISCHE  HYPOTHEKEN  UND  WECHSEL-BANK) 


>4FTER  an  unsuccessful  attempt  to 
/\  foster  agricultural  loans  by  means  of 
2,  \>  co-operative  mortgage  associations, 
the  Bavarian  Mortgage  and  Exchange 
Bank  was  chartered  in  1834,  with  combined 
powers  of  making  mortgage  loans,  transacting 
a  general  banking  business  and  issuing  notes. 

King  Ludwig  I  was  one  of  the  charter 
members.  The  original  capital  of  $4,000,000 
has  been  increased  from  time  to  time,  so  that 
it  now  stands  at  $14,292,000  with  reserve  of 
$13,420,188,  and  total  assets  of  over  $309,000,- 
000.  On  January  i,  191 3,  it  had  outstanding 
74,033  mortgage  loans,  amounting  to  $273,073,- 
795,  of  which  42,915  were  farm  loans  amount- 
ing to  $61,552,187,  giving  it  rank  among 
the  largest  of  the  land  mortgage  banks  of 
Germany. 

The  charter  originally  segregated  three- 
fifths  of  the  capital  for  use  in  making  mortgage 
loans,  at  a  rate  of  interest  not  to  exceed  4 
per  cent.  The  reserve  was  placed  at  not  less 
than  lYi  per  cent.  By  1862  all  of  the  capital 
had  been  employed  in  making  mortgage  loans, 
and  to  secure  much  needed  additional  funds, 
the  bank  was  then  authorized  to  sell  its 
debentures  and  guarantee  interest  and  princi- 
pal on  the  same,  '*a  blessing  for  land  owner- 
ship in  Bavaria  for  all  time."  The  circulation, 
of  these  mortgage  bonds  was  begun  in  May 
1864,  and  now  amounts  to  $269,930,765. 
These  certificates  are  redeemed  in  the  same 
amount  as  mortgage  loans  are  paid  off,  and 
are  legal  investments  for  trust  funds,  being 
held  largely  by  individuals,  trustees,  village 
corporations  and  societies  of  all  sorts.  Interest 
on  the  bonds  is  at  the  same  rate  as  on  Bavarian 
Consols,  deducting  perhaps  a  rate  of  exchange 
of  1.5  per  cent.,  being  one-half  of  one  per  cent, 
less  than  the  rate  charged  on  loans.  This 
difference  covers  the  cost  of  operation  and 
affords  the  banking  profit. 

The  Bavarian  banks  have  found  the  farm 
loan  the  most  desirable,  farm  properties  taken 
under  foreclosure  during  the  past  ten  years 
numbering  but  thirteen.  The  farm  loans 
average  $1,366.50. 

Appraisals 

Appraisals  are  facilitated  by  complete  public 
records  covering  real  estate  values  and  pro- 
ductivity, made  eighty  years  ago,  and  even 
yet  used  as  a  guide  to  values.  In  order  to 
save  costs,  small  farms  are  appraised  in  regard 
to  their  producing  power  and  assessed  valua- 
tion, the    former    being    obtained   from    the 


records  of  the  annual  sales  of  produce  from  the 
farm.  Buildings  and  exterior  conditions  are 
appraised  from  the  state  fire  insurance  and  local 
records.  Village  authorities  are  sometimes 
asked  to  report  the  general  condition  of  the 
land  and  buildings,  and  all  such  efforts  are 
supplemented,  as  occasion  requires,  by  jier- 
sonal  inspection;  but  the  costs  are  reduced  to 
the  lowest  consistent  with  safety.  No  loans 
are  made  on  timber  land  unless  assurance  is 
furnished  that  State  supervision  will  prohibit 
deforesting. 

Amortized  Loans 

Amortized  loans  are  granted  on  farm  lands 
only,  the  period  being  usually  52  years.  The 
interest  rate  is  now  a^/i  per  cent.  The  loan, 
is  uncallable,  and  costs,  which  are  nominal, 
deducted  before  the  proceeds  of  the  loan  are 
paid  over.  Payment  is  made  in  cash  or  bonds 
at  the  borrower's  option,  but  cash  payments 
predominate.  The  costs  of  obtaining  the 
loan  (always  paid  by  the  borrower)  may 
be  paid  in  yearly  installments  of  one-half  of 
one  per  cent,  of  the  amount  borrowed.  These 
costs  include  the  difference  between  market 
l^rice  and  par  (if  Ijonds  are  selling  at  a  dis- 
count), the  selling  commission,  the  stamp  tax 
{xYl  per  cent.)  and  the  ''warrant  tax"  (about 
1-50  per  cent,  per  annum).  Fourteen  days' 
grace  are  allowed  on  all  pavTiients.  The  limit 
of  loan  is  50  per  cent,  of  the  appraised  value. 

This  bank  like  many  others  of  the  same 
tyjje  in  other  countries  has  a  speedy  method 
of  foreclosure.  The  mortgage  deed  properly 
verified  and  recorded  is  subject  to  immediate 
enforcement  upon  failure  to  observe  its  con- 
ditions. The  interests  of  the  debtor  are 
conserved  by  auction  under  direction  of  a 
state  notary.  Upon  foreclosure  sale,  the 
bank  is  empowered  by  law  to  collect  the  debt 
from  the  purchaser,  but  if  the  buyer  and 
original  ow^ner  agree  that  the  buyer  assume 
the  debt,  the  bank  may  take  its  choice,  unless 
the  security  is  so  good  as  to  allow  their  wishes 
to  be  complied  with.  Arrears  of  interest 
carry  5.7  per  cent.;  taxes  i  per  cent.;  costs 
of  public  sale  4  per  cent.;  depreciation  in 
value  due  to  over-cropping  and  neglect  at 
least  15  per  cent.;  low  productivity  of  ensuing 
years  5  per  cent.;  loss  of  credit  standing,  due 
to  foreclosure  and  sale  and  scarcity  of  bids, 
about  10  per  cent.;  making  a  total  loss  in  value 
of  from  40  to  42  per  cent.  The  Imperial 
Banking  Laws  of  1899  were  largely  formed 
from  the  experience  of  this  bank. 


19 


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I 


il 


/      '  I 


France 


THE  first  mortgage  bank  in  France  dates 
from  1818,  coincident  with  the  begin- 
ning of  our  savings  bank  movement. 
The  bank  assumed  the  firm  name  of 
Deleuze,  Briot  &  Co.,  becoming  a  joint-stock 
company  in  1820.  It  made  loans  for  20  years 
at  4  per  cent,  plus  amortization  charges.  It 
paid  the  borrower  in  obligations  redeemable 
one-twentieth  each  year.  It  failed  in  1848,  due 
to  bad  operations  and  inadequate  mortgage 
laws. 

In  1850  a  Congress  of  Agriculturists  was 
called  to  provide  a  plan  to  secure  flexibility 
to  mortgage  credit,  and  favored  the  idea 
of  long  term  amortized  loans.  Numerous 
fanciful  plans  were  presented  to  the  National 
Assembly  about  this  time  to  convert  real 
estate  into  a  circulating  medium,  through  the 
issue  of  notes  based  on  landed  security  and 
making  them  legal  tender,  all  of  which  failed 
to  pass. 

The  existing  defects  were  cured  in  1852  by 
decrees  authorizing  land  credit  societies  with 
government  control,  and  providing:  (i)  That 
borrowers  should  have  the  option  of  discharg- 
ing the  debt  by  annual  payments. 


(2)  Each  land  credit  association  to  have 
limited  territory. 

(3)  These  associations  to  have  the  right  to 
issue  debenture  obligations. 

(4)  Loans  only  to  be  made  on  first  mort- 
gages, and  not  to  exceed  one-half  value  of  the 
property.  These  features  underlie  all  success- 
ful land  bank  operations. 

The  problem  at  the  beginning  was  to  deter- 
mine whether  it  was  more  advisable  to  form 
companies  of  borrowers — syndicates  of  land- 
owners, like  the  Landschaften  of  Germany,  to 
issue  certificates  to  those  who  borrow,  said 
certificates  to  be  sold  in  the  open  market  by 
the  borrower;  or  a  company  of  lenders  who 
borrow  on  their  own  credit  instruments,  prop- 
erly secured,  and  lend  at  a  higher  rate,  thus 
making  a  profit  for  the  lenders,  contrary  to  the 
underlying  principle  of  the  Landschaften  idea, 
that  no  profit  should  accrue,  mutual  good 
being  quite  sufficient  recompense  for  the  risk 
assumed;  and,  should  it  be  one  large  institu- 
tion, or  several  small  ones?  Centralization 
being  characteristic  of  France,  the  movement 
resolved  itself  into  one  nation-wide  institution 
with  special  privileges. 


The  Credit  Fonder 


THE  Credit  Fonder  of  France  is  the 
largest  and  best  known  institution  in 
the  world  making  mortgage  and  muni- 
cipal loans  from  the  proceeds  of  de- 
benture bonds  sold  in  the  open  market.  It 
is  the  model  for  all  similar  institutions.  Its 
distinguished  position  is  due  to  two  causes: 
Monopoly  and  lottery.  It  is  the  only  bank  in 
France  issuing  debenture  bonds  secured  by 
mortgages  on  real  estate  and  municipal  obli- 
gations, certain  of  which  debentures  carry 
special  prizes  in  the  periodical  drawings,  thus 
making  a  wide  and  steady  demand  for  these 
securities  at  a  low  rate  of  interest,  usually  3  %. 

It  was  formed  in  Paris  (1852),  with  a  capital 
of  25,000,000  francs.  The  principal  bankers 
of  Paris  were  stockholders,  and  it  took  the 
name  of  Banque  Fonciere  de  Paris,  or  Societie 
de  Credit  Fonder. 

Other  associations  of  the  same  kind  were 
formed  at  Marseilles  and  Nevers,  and  others 
were  on  the  point  of  organizing  when,  on 
December  10,  1852,  a  decree  was  issued,  ex- 
tending the  privilege  of  the  Credit  Fonder  to 
all  the  departments  where  institutions  of  this 
kind  had  not  yet  been  formed,  and  authorized 
it  to  take  over  the  two  companies  at  Marseilles 
and    Nevers.     The    name    was    changed    to 


Credit  Fonder  de  France,  and  thus  it  became 
a  monopoly,  receiving  a  grant  of  10,000,000 
francs  from  the  State.  The  guaranty  fund 
was  placed  at  60,000,000  francs,  and  it  under- 
took to  make  mortgage  loans  to  the  amount  of 
200,000,000  francs,  including  interest,  sinking 
fund  and  administrative  expenses,  so  as  to 
liquidate  the  debt  in  50  years. 

The  bank  worked  on  the  theory  that  it  was 
strong  enough  to  fix  the  rate  of  interest  on 
capital,  but  found  that  in  this  it  was  mistaken. 
An  issue  of  200,000,000  francs  was  unsuccess- 
ful, and  in  1853  the  5  per  cent,  rate  was  modi- 
fied, and  a  sliding  scale  adopted,  based  on  the 
average  market  price  of  government  3s.  The 
organization  did  not  pay  as  yet,  185  2- 1854 
being  an  unfavorable  period.  Bad  harvests, 
war,  the  emission  of  numerous  other  securities 
increased  the  rate  of  interest,  and  made  the 
placing  of  Credit  Fonder  bonds  difficult.  To 
remedy  the  situation,  a  system  of  monopoly 
with  state  control  was  instituted,  and  on 
July  6,  1854,  a  decree  bestowed  on  the  Credit 
Fonder  an  organization  similar  to  the  Bank 
of  France,  and  the  scheme  of  operation  as 
outlined  below  was  adopted  and,  in  its  funda- 
mental points,  so  remains.  The  monopoly 
was  not  renewed  at  the  expiration  of  the  25- 


21 


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AGRICULTURAL     CREDIT      BANKS 


year  period,  but  all  its  original  privileges 
remain,  the  principal  of  which  is  the  prize 
awards  to  lucky  numbers  in  the  redemption 
drawings. 

The  Theory  of  its  Organization 

The  most  important  features  are  taken  from 
the  Landschaften  of  Germany,  the  main  differ- 
ence being  in  the  fact  that  it  is  not  co-opera- 
tive and  works  for  the  profit  of  its  share- 
holders. Its  great  success  is  due  to  the  amor- 
tization of  its  loans,  the  annuities  being  paid 
into  a  sinking  fund  to  redeem  debentures, 
which  must  be  retired  as  fast  as  loans  are 
paid.  The  underlying  principle  of  land  bank 
operation  is  this:  Capital  invested  in  land 
can  be  regained  but  slowly,  from  the  income 
of  the  property,  and  loans  made  on  grounded 
security  should,  therefore,  be  of  long  dura- 
tion, part  of  the  investment  being  repaid 
each  year  from  the  income  of  the  property, 
until  the  loan  is  automatically  reduced  to 
nothing.  The  scheme  is  exceedingly  simple: 
Sell  debentures  in  the  open  market;  with  the 
proceeds  grant  loans;  with  the  annuities  of 
the  loans  redeem  the  bonds,  and  so  on  ad 
infinitum.  As  the  demand  increases,  new 
issues  are  put  out,  the  amount  of  debentures 
outstanding  being  balanced  by  the  loans  un- 
paid, and  vice  versa.  Therefore  land  credit, 
which  is  a  slow,  immovable  form  of  credit,  be- 
comes liquid  like  other  forms  of  credit — a 
most  essential  element  in  all  credit  operations. 

The  only  danger  lies  in  making  unwise  loans, 
resulting  in  foreclosures,  so  that  the  assets 
shall  take  the  form  of  real  estate  holdings, 
everywhere  recognized  as  undesirable  from  a 
banking  standpoint.  The  debtor  must  keep 
his  engagements  if  the  bank  is  to  keep  its 
contracts.  The  realty,  therefore,  must  be 
productive,  well  scattered,  well  located,  and 
well  kept;  waste  and  decay  prohibited,  and 
the  property  conservatively  appraised.  The 
amortization  feature  (introduced  into  France 
in  1835,  by  Louis  Walowski,  who  borrowed 
the  idea  from  Germany,  where  it  had  been  in 
operation  since  1770),  largely  overcomes 
many  elements  of  risk,  for  as  the  property 
grows  older,  the  risk  is  likewise  lessened,  and 
if  the  original  value  is  maintained,  the  margin 
of  safety  constantly  grows  larger.  In  capi- 
tahzing  this  idea  the  Credit  Fonder  has  led 
the  world. 

It  must  not  be  inferred,  however,  that  this 
is  the  only  institution  that  assists  the  agricul- 
turist in  France;  for,  as  a  matter  of  fact,  only 
about  20  per  cent,  of  its  loans  are  rural,  and 
at  least  three  types  of  banks  are  in  operation, 
all  tending  to  assist  the  farmer.     These  are: 


The  Credit  Agricole,  the  societies  of  the  Ray- 
neri-Rostand  type;  and  the  Durand  banks, 
the  latter  two  being  of  the  co-operative  sort. 
Co-operative  credit,  however,  while  quite 
an  original  idea  with  the  French  people,  has 
never  had  the  growth  characteristic  of  this 
form  of  banking,  particularly  in  Germany  and 
Italy.  "We  have  many  ideas,"  says  a  French- 
man, ''but  when  it  comes  to  applying  the ni 
in  the  realm  of  fact,  a  strange  timidity  is  evi- 
dent." 

The  Lottery  Feature 

The  object  of  the  lottery  feature  is  to  pro- 
vide a  wide  and  active  market  for  the  bonds 
at  a  low  rate  of  interest.  Intrinsically  they 
are  on  a  par  with  government  securities,  and 
would  be  a  premier  investment  because  of  the 
underlying  security;  but  it  is  readily  apparent 
that  with  the  possibility  of  holding  a  lucky 
number,  the  element  of  chance  enters  to  make 
the  ownership  not  only  safe  but  possibly 
highly  remunerative.  Thus  in  191 1  one  bond 
drew  a  prize  of  $40,000,  and  the  issues,  in 
spite  of  what  would,  at  times,  be  a  low  income 
rate,  are  in  great  demand,  the  issue  of  $100,- 
000,000  in  191 2  being  18  times  over-subscribed. 

These  drawings  are  made  by  means  of 
wheels  about  5  feet  in  diameter  and  39  inches 
thick,  resembling  a  drum  revolving  on  its  axis. 
The  sides  are  composed  of  two  pieces  of  glass 
with  wire  mesh  in  between,  the  framework  and 
pedestal  being  of  bronze. 

When  an  issue  of  bonds  is  put  out,  a  new- 
wheel  is  constructed,  into  which  are  placed  by 
mechanical  means  each  of  the  numbers  appear- 
ing on  the  bonds  of  the  series.  These  numbers 
are  either  on  small  slips  of  parchment,  rolled 
and  sealed  at  the  ends,  or  slips  of  Japan  paper 
enclosed  in  brass  or  copper  tubes,  also  sealed. 
The  interior  is  reached  through  a  tiny  door 
with  safety  lock  and  seal,  opened  only  by 
three  keys,  one  being  held  by  the  governor, 
one  by  the  board  of  directors,  and  one  by 
the  committee  of  censors.  Drawings  are 
public,  and  long  before  the  appointed  hour 
the  drawing  hall  is  crowded  with  anxious  and 
possibly  successful  bond  holders,  who  may 
draw  the  coveted  first  prize  and  a  small  for- 
tune. At  the  time  of  drawing  the  wheel  is 
placed  in  full  view  of  the  audience,  given  a 
few  turns  to  mix  the  numbers,  the  seal  is  ex- 
amined and  broken,  the  door  opened,  and  a 
little  child  from  a  public  asylum  with  bared 
arm  draws,  one  by  one,  the  designated  number 
of  cylinders.  The  numbers  are  called  off  and 
are  afterward  published.  The  door  is  again 
sealed  and  locked  until  the  next  drawing. 
Every  effort  is  made  to  make  these  drawings 


V 


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AGRICULTURAL      CREDIT      BANKS 


22 


above  suspicion.  The  annual  drawing  con- 
sists of  4,362  numbers,  the  total  distributions 
averaging  40,000,000  francs  in  prizes  of  1,000, 
5,000,  10,000  25,000,  50,000  100,000  and  200,- 
000  francs. 

In  i860  the  Credit  Foncier  loaned  its  sup- 
port to  the  formation  of  an  organization  for 
supplying  capital  and  credit  to  agriculture 
and  allied  industries.  This  "Credit  Agricole" 
rendered  but  trifling  services  to  agriculture  and 
soon  threw  itself  into  speculation.  Between 
1873  and  1876  it  lent  enormous  sums  to  the 
Egyprian  Government,  obtaining  the  funds 
by  receiving  credit  \rith  the  Credit  Foncier 
and  depositing  Egyptian  securities.  On  the 
failure  of  the  Egyptian  Government  to  meet 
its  payments,  the  Credit  Agricole  went  into 
liquidation  and  the  Credit  Foncier  sufifered 
severely.  The  impracticability  of  the  credit 
system,  as  worked  out  by  the  Credit  Agricole, 
to  aid  agriculture,  was  very  marked,  and  as  a 
consequence,  agricultural  credit  operations  are 
now  carried  on  by  the  new  Credit  Agricole 
elsewhere  described.  In  1881  the  charter  of 
the  Credit  Foncier  was  renewed  for  99  years. 

Administration 

The  Minister  of  Finance  has  general  super- 
vision over  the  affairs  of  the  Credit  Foncier, 
but  the  administration  devolves  upon  a  gov- 
ernor, appointed  for  life  by  the  President  of 
the  RepubHc.  He  must  own  at  least  200  shares 
of  stock.  His  salary  is  $8,000  per  annum,  and 
he  is  the  head  of  the  board  of  directors.  Two 
sub-governors  are  Ukewise  appointed  for  life, 
who  must  own  at  least  100  shares  of  stock. 
Sub-governors  receive  $4,000  per  annum  each. 

The  bank  is  closely  connected  with  the 
government,  three  directors  being  high  officials 
of  the  Treasury  Department.  The  board  of 
directors  consists  of  the  governor  and  two 
sub-governors,  three  auditors  and  20  to  23 
directors,  elected  by  the  general  assembly  of 
200  of  the  largest  stockholders,  who  meet 
once  a  year  to  receive  reports,  elect  directors, 
auditors,  vote  on  increase  of  capital  and 
amend  the  by-laws  and  constitution,  etc. 
Forty  of  the  above  200  stockholders  constitute 
a  quorum,  if  they  hold  one-tenth  of  the  stock. 
Each  member  has  one  vote  to  every  40  shares, 
but  cannot  cast  more  than  five  votes  in  his 
own  name,  nor  more  than  ten  votes  in  his  own 
name  and  by  proxy.  He  is  allowed  one  vote 
even  though  shares  held  are  less  than  40. 

Capital  and  Surplus 

The  capital  is  now  $40,000,000,  authorized 
to    be    increased    to    $50,000,000    and    must 


always  equal  one-twentieth  of  the  amount 
received  for  the  outstanding  debentures,  of 
which  it  is  the  primary  guaranty.  The  shares 
are  $100  each,  non- assessable,  and  cannot  be 
issued  below  par. 

One-quarter  of  the  capital  must  be  invested 
in  French  rentes,  or  other  treasury  bonds; 
one-fourth  in  office  buildings  of  the  society  or 
loans  to  the  French  colonies,  or  securities 
deposited  with  the  Bank  of  France  as  a  guar- 
anty for  advances. 

After  paying  5  per  cent.  di\ndends,  the  bank 
must  set  aside  between  5  and  20  per  cent,  to 
reserve  until  it  equals  one-half  the  capital. 

The  surplus  may  be  loaned  on  mortgages, 
or  to  municipaUties,  or  advanced  to  borrowers 
in  arrears,  or  used  to  purchase  mortgaged  prop- 
erty under  foreclosure,  or  buying  commercial 
jjaper  acceptable  to  the  Bank  of  France. 

Deposits 

The  Credit  Foncier  may  recei\e  deposits 
up  to  $20,000,000,  one-quarter  of  which  must 
be  kept  in  the  government  treasury,  the  bal- 
ance in  government  paper,  treasury  bonds, 
commercial  notes,  and  securities.  The  soci- 
ety also  transacts  a  general  banking  and  trust 
company  business. 

Debenture  Bonds 

The  Credit  Foncier  procures  funds  to  itself 
by  the  issue  of  debenture  bonds,  both  regis- 
tered and  coupon.  It  issues  two  kinds  of 
debentures,  those  representing  loans  to  private 
individuals  on  mortgage  security  being  called 
"foncieres,"  and  those  representing  loans  to 
municipalities  being  called  "communales." 
The  smallest  denomination  is  100  francs,  the 
largest  500  francs.  They  may  be  bought  in 
installments  (and  if  installments  are  regularly 
paid,  the  owner  may  participate  in  the  draw- 
ings), and  are  the  most  popular  form  of  in- 
vestment in  France.  The  length  of  the  loans 
and  rates  of  interest  may  be  seen  from  the 
following  list  of  bond  issues. 

Land  loan  of  1879,  3    %,  due  in  60  years. 

Land  loan  of  1883,  3    %,  due  in  98  years. 

Land  loan  of  1885,  2.6%,  due  in  95  years. 

Land  loan  of  1895,  2.8%,  due  in  75  years. 

Land  loan  of  1903,  3    %,  due  in  75  years. 

Land  loan  of  1909,  3     %,  due  in  70  years. 

Land  loan  of  191 2,  3     %,  due  in  70  years. 

Municipal  loan  of  1879,  2.6%  due  in  60  years. 

Municipal  loan  of  1880,  3    %  due  in  60  years. 

Municipal  loan  of  1891,  3    %  due  in  75  years. 

Municipal  loan  of  1892,  2.6  %due  in  75  years. 

Municipal  loan  of  1899,  2.6%  due  in  75  years. 

Municipal  loan  of  1906,  3    %  due  in  90  years. 

Municipal  loan  of  191 2,  3    %  due  in  70  years. 


23 


|5 


AGRICULTURAL      CREDIT      BANKS 


It  will  be  seen  from  the  foregoing  that  the 
two  forms  of  issue  in  a  measure  alternate,  the 
only  issues  brought  out  simultaneously  being 
those  of  1879, 

Borrowers  have  the  right  to  pay  in  advance, 
and  frequently  do  so,  thus  retiring  a  like 
amount  of  bonds.  The  bonds  are  legal  invest- 
ments for  trust  and  public  funds,  and  on 
account  of  the  lottery  feature  have  no  fixed 
time  of  payment  other  than  the  maximum 
time  before  retirement. 

Interest  Rates 

The  rate  of  interest  charged  borrowers  can- 
not exceed  six-tenths  of  one  per  cent,  more  than 
the  selling  price  of  the  debentures  at  the  time 
of  the  loan.  The  charge  to  municipalities  is 
45-100  more  than  the  debenture  rate.  The 
present  rate  is  4.30  for  mortgages;  4.1  for 
public  purposes;   3.85  for  municipals. 

Loaning  Methods 

The  Credit  Foncier  loans  to  individuals, 
corporations  and  municipalities.  Mortgages 
given  to  it  are  exempt  from  decennial  regis- 
tration required  of  other  mortgages,  and  it 
has  a  cheap  and  speedy  method  of  clearing 
title  of  defects,  and  a  speedy  and  inexpensive 
method  of  foreclosure.  It  may  sell  the  prop- 
erty in  case  of  deterioration.  It  lends  only  on 
first  mortgage  and  makes  no  loans  on  theatres, 
mines,  or  quarries.  Loans  are  limited  to  one- 
half  appraised  value.  On  orchards,  planta- 
tions, etc.,  it  loans  only  one- third.  Factories 
are  appraised  without  regard  to  their  special 
adaptability. 


The  company  also  does  business  in  Tunis 
and  Algiers,  and  may  enter  into  projects  to 
improve  agriculture  and  finance  drainage  oper- 
ations. It  lends  money  to  a  company  of 
builders — the  Sous-Comptoir  des  Entrepre- 
neurs, on  what  we  would  term  building  loans. 

The  borrower  cannot  agree  to  pay  a  greater 
annuity  than  the  total  income  of  the  property 
per  annum.  The  company  does  a  large  busi- 
ness in  short  term  (1-9  years)  mortgages,  with- 
out amortization,  but  its  main  purpose  is  to 
finance  long  term  loans  (10-75  years)  both  to 
individuals  and  municipah'ties  amortized  over 
a  period  decided  upon  at  the  time  of  the  loan. 

It  may  use  the  government  treasury  for  the 
receipt  of  installments  and  interest  payments 
and  deposit  of  surplus  funds.  Government 
ofiicials,  paymasters,  etc.,  attend  to  all  oper- 
ations in  connection  with  collection  of  coupons 
(paid  everywhere  by  the  banks,  freely),  pur- 
chase and  sale  of  the  bonds  without  charge. 

In  191 2  the  net  profits  were  15,960,000 
francs,  a  gain  of  2,800,000  francs  over  191 1. 
The  society  made  8,200  mortgage  loans  to 
individuals,  amounting  to  over  235,000,000 
francs,  7,900  being  for  long  terms,  and  amount- 
ing to  232,000,000  francs.  Mortgages  are  paid 
off  at  the  rate  of  about  75,000,000  francs  yearly. 

Since  its  organization  the  Credit  Foncier 
has  made  175,000  loans,  aggregating  6,382,- 
000,000  francs,  of  which  4,000,000,000  francs 
have  been  repaid.  The  communal  loans  in  191 2 
amounted  to  317,500,000  francs,  100,000,000 
francs  being  loaned  to  the  City  of  Paris,  and 
72,000,000  francs  to  Tunis,  the  rate  being  4.15 
per  cent.  The  total  outstanding  loans  are 
now  over  $870,000,000. 


T 


The  Credit  Agricole 


iHERE  is  not,"  says  Wolff,  in  writing 
of  co-operative  credit  in  France,  "a 
country  in  which  more  research,  and 
labor,  and  money  have  been  ex- 
pended upon  the  quest  of  a  practicable  and 
effective  form  of  paper  credit,  than  France.' ' 
The  trouble  has  been  that  the  authors  lacked, 
not  originality  but  perseverance — the  perse- 
verance   of    Raiffeisen   and    Schulze. 

Since  1837  the  French  authorities  have 
given  attention  to  agricultural  credit;  but  its 
real  development  begins  with  1884,  after  the 
promulgation  of  the  law  on  professional 
syndicates.  In  1894  the  law  instituted 
local  agricultural  mutual  credit  banks  and 
gave  a  powerful  stimulus  to  the  work. 
In  1899  the  law  on  regional  banks 
brought  the  bounty  of  the  State  to  agriculture, 
and  today  the  work  of  the  Credit  Agricole 


covers  the  country  with  a  regional  bank  in 
every  department,  and  over  3,000  local 
societies  having  an  average  membership  of 
from  40  to  50.  It  is,  in  short,  a  distributing 
agency  for  a  governmental  subsidy. 

The  Origin  and  the  Theory 

A  particularly  favorable  opportunity  to 
bring  state  aid  to  agriculture  occurred  in  the 
re-chartering  of  the  Bank  of  France,  which 
in  the  minds  of  the  agriculturists,  neglected 
them,  and  would  not  discount  their  bills — not 
because  they  were  "farmer's  notes,"  but  be- 
cause they  were  for  long  periods,  and  for  small 
amounts  and  would  probably  have  to  be 
renewed.  Theoretically  it  was  a  bank  for  all 
the  people  and  had  no  right  to  exclude  the 
farmer;  therefore  if  the  farmer  could  not  come 


s  > 

v4 


^  ■     I   X 


'V 


24 


AGRICULTURAL     CREDIT      BANKS 


to  the  bank,  the  bank  must  be  brought  to  the 
farmer.  As  a  result  we  have  the  Credit 
Agricole  of  France. 

The  idea  is  based  precisely  on  the  plan  of 
anirrigation  scheme;  first  the  central  reservoir, 
then  the  main  branches,  then  the  laterals,  and 
so  percolating  through  to  the  minutest  part 
of  the  system.  In  this  instance  the  Bank 
of  France  is  the  reservoir,  the  regional  banks 
the  branches,  the  individual  societies  or 
banks  the  final  distributing  agencies  to  reach 
the  borrower. 

In  renewing  the  charter  of  the  Bank  of 
France  in  1897,  for  a  period  of  twenty  years, 
it  was  required  to  advance  to  the  State  with- 
out interest,  for  a  like  period,  the  sum  of 
40,000,000  francs,  and  to  make  an  annual 
payment  of  not  less  than  two  million  francs 
(which  in  fact  has  been  from  3  to  5  million 
francs),  as  a  franchise  tax;  the  original  allot- 
ment to  be  refunded  at  the  end  of  the  charter 
period,  namely  1920. 

The  object  of  the  Credit  Agricole  is,  therefore, 
to  supply  the  French  farmers  with  both  long 
and  short  (principally  short)  time  credit 
through  the  medium  of  local  co-operative 
societies,  afiiliated  with  regional  banks,  estab- 
lished for  the  purpose  of  distributing  the  funds 
above  mentioned.  The  regional  banks  loan 
to  the  local  banks  at  3  per  cent.,  these  in  turn 
lend  to    the    borrower   at  from  3>^  to  4%. 

In  most  cases  of  state  aid,  the  channel 
through  which  it  is  to  operate  is  existent 
when  the  aid  is  made  available;  here  the  chan- 
nel had  to  be  created — working  from  the  top 
down  instead  of  from  the  bottom  up  as  usually 
obtains.  And  yet,  while  the  Government 
would  stimulate,  and  instruct,  the  final  dis- 
tributing agencies  must  come  from  a  free  and 
local  effort.  As  a  stimulus  to  encourage 
capital  subscription  it  is  provided  that  for 
every  dollar  of  capital  subscribed  to  the 
regional  bank  (only  one-fourth  of  which 
need  be  paid  up),  the  State  will  advance  four 
dollars  by  way  of  loan  without  interest,  five 
years  to  run.  The  result  has  been  good;  many 
local  banks  subscribing  all  their  own  capital 
to  the  regional  banks,  leaving  themselves 
practically  without  working  funds. 

Local  Banks 

The  local  banks  may  be  composed  either 
of  the  whole  or  part  of  the  membership  of 
one  or  more  agricultural  syndicates,  or  mutual 
insurance  societies,  the  object  of  which  is  to 
help  one  another  by  a  mutuality  of  effort 
based  upon  mutual  confidence  and  mutual 
needs.  The  area  is  limited  to  the  commune, 
canton  or  village. 


Capital 

The  initial  capital  of  the  local  bank  is 
formed  by  shares  subscribed  exclusively  by 
members,  as  low  as  one-fourth  being  paid  up. 
Shares  are  generally  of  20  or  40  franc  denomina- 
tion, have  no  rights  to  dividends,  but  usually 
carry  interest  at  not  over  4  per  cent.  Seven 
men  paying  down  35  francs  may  form  a  local 
society.  Deposits  may  be  received  with  or 
without  interest. 

Liability  is  subject  to  choice  of  the  society, 
but  is  generally  limited  to  the  amount  of 
shares  subscribed.  Some  banks  have  un- 
limited liability  of  the  Raiffeisen  order,  or 
unlimited  as  to  certain  members;  or  liability 
of  from  two  to  four  times  the  nominal  value 
of  the  shares  held.  The  tendency  is  to  un- 
limited liability,  this  being  the  preference  of 
the  State. 

As  soon  as  the  local  bank  is  established,  it 
becomes  affiliated  with  the  regional  bank  of  the 
department  by  subscribing  for  a  certain 
number  of  shares  in  the  latter.  It  may  then 
avail  itself  of  the  credit  facilities  of  the  regional 
bank,  which  discounts  its  bills  and  grants 
loans  to  form  its  working  capital. 

The  membership  in  these  local  banks  grew 
from  7,998  in  1901  to  151,621  in  19 10,  and  the 
number  of  banks  from  309  to  3,338.  The 
capital  fund  in  1910  stood  at  9,910,611  francs. 
The  loans  granted  during  the  year  amounted 
to  70,533,340  francs  with  51,815,857  francs  out- 
standing at  the  end  of  the  year.  Interest 
paid  on  shares  varies  from  2  to  5  per  cent, 
and  the  discount  rate  from  3  to  5  per  cent. 

Administration 

The  local  society  is  managed  by  a  council 
unremunerated,  which  must  meet  weekly, 
preferably  Sunday  morning,  and  a  committee, 
which  generally  comprises  a  president,  vice- 
president  and  a  secretary. 

Reserve 

At  least  three-fourths  of  the  profits  are 
allotted  to  the  reserve  until  the  same  equals 
half  the  paid-up  capital.  The  balance  may  be 
divided  among  the  members  pro  rata. 

Loans 

The  application  approved  by  the  local  com- 
mittee (conseil)  elected  by  the  members,  is 
sent  to  the  regional  bank,  whose  committee  is 
elected  by  the  local  banks  of  the  district,  and 
which  generally  has  a  "credit  list"  giving  the 
limit  of  credit  each  member  is  entitled  to, 
similar  to  a  modern  bank's  credit  department. 


25 


f 


I 


AGRICULTURAL      CREDIT      BANKS 


If  the  loan  is  granted,  the  applicant  draws  a 
bill  on  himself,  endorsed  by  the  local  office, 
which  is  discounted  by  the  regional  bank. 
Bills  are  usually  drawn  for  three  months,  re- 
newed, provided  the  total  period  does  not 
exceed  two  years,  and  one-half  is  paid  at  the 
end  of  the  first  year. 

The  local  banks,  therefore,  have  no  "council 
of  supervision  "  or  "inspection,"  for  the  regional 
bank  holds  the  keys  to  the  credit  chest,  the 
local  bank  becoming  merely  a  branch  of  the 
regional  institution;  but  as  a  whole  the 
system  works  well,  in  spite  of  the  fact  that  the 
government  has  employed  only  40  per  cent, 
of  the  funds  available,  and  the  free  use  of 
this  form  of  co-operative  credit  has  had  to  be 
urged  upon  the  people  of  France. 

Regional  Banks 

The  regional  banks,  whose  sphere  of  action, 
as  a  rule,  is  co-extensive  with  a  department 
are  regulated  by  the  law  of  March  31,  1909, 
which  authorized  them  to  receive  from  the 
State,  out  of  the  fund  furnished  by  the  Bank 
of  France,  loans  without  interest,  up  to  four 
times  their  paid-up  capital,  for  a  period  of 
five  years,  subject  to  renewal.  Thus  in  a 
department  where  ten  local  banks  have  sub- 
scribed 10,000  francs,  forming  a  capital  fund 
of  100,000  francs  for  the  regional  bank  (only 
part  of  which  need  be  paid  up),  the  bank  is 
entitled  to  an  advance  of  400,000  francs.  The 
regional  banks  are  based  upon  the  same 
principles  as  the  local  banks,  and  enjoy  the 
same  privileges.  They  are  composed  of  local 
banks  and  of  individual  farmers,  two-thirds 
of  the  shares  being  reserved  by  preference 
for  the  former.  The  local  banks  usually  pay 
up  their  shares  in  full,  the  individuals,  as  a 
rule,  only  up  to  one-fourth.  The  interest  on 
shares  is  limited  to  5  per  cent. 

The  bills  of  the  regional  banks  may  be  dis- 
counted by  the  Bank  of  France,  since  they  have 
three  names  attached  when  reaching  it — the 
maker,  the  local  bank,  and  the  regional  bank. 
They  make  loans  to  co-operative  societies  for 
the  production  of  and  sale  of  agricultural 
produce,  and  loans  to  individuals  for  acquisi- 
tion and  improvement  of  small  holdings. 

In  1910  there  were  96  regional  banks,  and 
the  sum  placed  at  their  disposal  from  1900  to 
191 1  was  11,386,815  francs. 

Methods  of  Operation 

A  special  committee  nominated  by  the 
Minister  of  Agriculture  distributes  the  sums 
among  the  regional  banks  and  a  body  of  in- 
spectors supervises  their  workings.    The  com- 


mittee of  management  of  the  regional  ijank  is 
elected  from  the  representatives  of  the  local 
banks. 

There  are  three  methods  pursued  in  granting 
loans  by  the  regional  banks  to  the  local 
societies:  (a)  When  a  member  applies  for  a 
loan  from  the  local  bank  (and  to  borrow,  he 
must  be  a  member  of  the  local  bank  and  an 
agriculturist,  borrowing  for  agricultural  needs, 
the  test  being  as  to  whether  or  not  he  is  a 
member  of  an  agricultural  co-operative  so- 
ciety), it  requires  him  to  sign  a  bill  which  is 
sent  to  the  regional  bank  to  be  discounted; 
the  regional  bank,  if  in  funds,  immediately 
forwards  the  amount  applied  for,  less  the  dis- 
count. Or  (b)  the  regional  bank  may  grant  a 
loan  to  the  local  bank  proportionate  to  the 
amount  of  the  shares  subscribed.  The  local 
bank,  if  not  in  need  of  immediate  funds,  may 
deposit  the  money  in  the  savings  bank  and 
draw  upon  it  from  time  to  time.  The  former 
is  simpler  and  allows  a  greater  measure  of  con- 
trol and  is  the  more  generally  in  vogue.  Or, 
(c)  the  regional  bank  being  out  of  funds  may 
endorse  the  instrument,  making  it  "three 
name  paper"  and  pass  it  on  to  the  Bank  of 
France  for  re-discount. 

Thus  in  1910  the  regional  banks  discounted 
bills  amounting  to  67,000,000  francs,  and 
granted  loans  only  to  the  extent  of  1,250,000 
francs.  The  rate  of  interest  on  loans  must 
necessarily  be  higher  than  the  discount  rate 
at  the  regional  bank,  the  margin  being  usually 
about  I  per  cent.  The  size  of  the  loans  is 
generally  proportionate  to  the  shares  held, 
running  from  10  to  20  times  the  amount.  In 
some  societies  a  maximum  limit  is  fixed. 

The  Guaranty 

The  guaranty  consists  either  of  surety  or 
deposit  of  securities,  except  where  the  guaranty 
may  be  waived.  If  the  loan  is  to  purchase 
live  stock,  the  animals  must  be  insured. 

Bills  may  be  drawn  for  three  months  with 
two  to  four  renewals,  depending  upon  the 
nature  of  the  transaction.  Some  bills  are 
drawn  for  the  same  period  as  the  loan  wth 
no  renewal. 

The  objects  for  which  loans  are  granted  are 
few,  according  to  schedule;  but  permanent 
improvements — wells,  drainage,  irrigation, 
buildings,  etc.,  for  which  the  Raiffeisen  banks 
encourage  borrowing,  are  excluded  once  for  all. 
Collective  purchase  and  sale  of  fertilizers, 
food  stuffs,  etc.  are  particularly  encouraged. 
The  period  of  loan  varies  according  to  the  pur- 
pose for  which  the  money  is  borrowed,  a  loan 
to  carry  crops  for  a  more  favorable  market 


26 


•  ■      '     .-^ 


AGRICULTURAL      CREDIT      BANKS 


would  be  short;  to  purchase  a  cow,  longer. 
Wolff  says  of  this,  "The  method  adopted  is 
terribly    wooden,    rule-of-dumb    and    hinder- 

;„™  " 
mg. 

Statistical 

On  January  i,  i9ii,the  regional  banks  had 
at  their  disposal  State  loans  amounting  to 
57,177,425  francs,  50,442,585  of  which  had 
been  advanced  for  the  purpose  of  financing  the 
local  banks.  The  working  capital  at  the 
disposal  of  the  regional  banks  in  1 910  for 
financing  local  banks  was  71,423,930  francs, 
consisting  of: 

Paid-up  Capital  .        .     15,912,801  francs 

Reserve  Funds  .  .  .  2,868,544 
State  advances  .  .  .  40,442,585 
Deposits       ....     12,200,000 

71,423,930 

The  subscribed  capital  amounted  to  17,493,- 
225  francs  in  19 10,  about  two-thirds  being 
subscribed  by  local  banks.  About  one-half  of 
these  banks  have  a  paid-up  capital  of  less  than 
100,000  francs.  The  interest  paid  on  the 
shares  runs  from  3  to  4  per  cent.  The  total 
discounts  in  19 10  by  the  regional  banks,  in- 
cluding  renewals,  was  136,865,263  francs,  the 


rate  of  discount  in  55  banks  being  3  per  cent. 
General  expenses  amount  to  .032  per  cent,  of 
the  loans. 

General  Results 

The  general  results  during  the  ten-year  test 
have  been,  broadly  speaking,  satisfactory,  local 
banks  constantly  increasing  in  number  and 
usefulness  to  the  farmer. 

Wolff,  however,  doubts  if  the  original  al- 
lotment will  be  paid  when  due  in  1920  and  will 
not  have  to  be  WTitten  off  the  books  of  the 
Bank  of  France  as  a  bad  debt.  These  banks 
placed  about  384,000,000  francs  at  the  dis- 
posal of  farmers  in  the  decade  ending  1910, 
yearly  advancement  increasing  from  2,000,- 
000  francs  in  1900  to  70,000,000  francs  in  1910, 
although  in  the  distribution  of  the  "manna" 
favoritism  and  politics  have  had  a  voice. 
To  offset  this  a  "Credit  Agricole  Department" 
has  been  formed  to  deal  systematically  with 
all  applications,  directing  and  encouraging 
the  work  through  committees  under  its 
direction.  The  tendency  is  to  take  what  is 
given  and  use  it  rather  than  make  the  move- 
ment so  strong  that  it  invites  its  own  working 
funds  (deposits)  by  the  security  afforded 
(capital),  so  that  in  time  the  scheme  may  run 
without  State  aid.  But  it  was  ever  thus  with 
governmental  subsidy. 


Co-operative  Agricultural  Credit  in  France 


RAIFFEISENISM  in  France  found  its 
chief  exponent  in  the  person  of  Louis 
Durand,  a  pronounced  Roman  Cath- 
olic, whose  institutions  take  on  a  strong 
savor  of  Catholicism,  and  are  the  only  French 
co-operative  banks  that  have  succeeded.  Like 
their  pure  prototypes,  they  issue  no  shares  and 
pay  no  dividends.  Their  loanable  funds  con- 
sist of  the  deposits,  loans  from  members,  inter- 
ested parties  and  other  banks,  and  the  accu- 
mulated reserve,  which  when  it  reaches  one- 
fourth  the  capital  serves  to  reduce  the  rate  on 
loans. 

The  clientele  are  small  proprietors,  or  tenant 
farmers.  The  rate  for  loans  is  from  3I  to  65 
per  cent.,  and  interest  on  deposits  is  i  per  cent, 
less.     Unlimited  liability  is  the  rule. 

The  commune  is  the  sphere  of  operation,  and 
the  banks  are  combined  into  groups,  regional 
or  diocesan,  forming  central  banks  which  act 
as  supervisory  and  propagandist  bodies,  as 
w^ell  as  regulating  the  flow  of  money.  A  Cen- 
tral Union  of  Rural  and  Workmen's  Banks 
with  unlimited  liability  has  its  headquarters 


at  Paris.  In  1910  the  Durand  banks  numbered 
672,  with  18,279  members,  "turning  over" 
19,241,903  francs.  They  received  11,300,550 
francs  on  deposit  and  granted  9,396  loans. 
The  total  assets  are  12,569,915  francs,  the 
main  source  of  capital  being  deposits. 

As  in  Belgium,  so  in  France,  the  idea  was 
conceived  that  the  initial  fund  for  the  work 
of  the  rural  banks  should  come  from  the  sav- 
ings banks,  and  Eugene  Rostand,  president  of 
the  Savings  Bank  of  the  Bank  of  Rhone,  urged 
his  bank  to  establish  local  mutual  banks  and 
finance  them.  In  1895  the  savings  banks  were 
authorized  to  set  aside  part  of  their  funds  for 
the  use  of  agricultural  credit,  and  permitted 
the  bank  to  advance  20,000  francs  by  way  of 
loans.  From  1894  to  1909  there  were  thus 
created  22  banks,  and  from  1901  to  1909  these 
"Rostand  banks"  distributed  1,142,663  francs 
to  farmers.  There  may  also  be  mentioned  the 
co-operative  banks  of  the  Alpes  Maritimes  pro- 
moted by  Rayneri,  and  the  Popular  Bank  of 
Mentone,  besides  isolated  independent  credit 
institutions. 


27 


Italy 


y4  T  the  time  co-operative  credit  for  the 
/.\  farmer  was  introduced  into  Italy,  con- 
jL  a.  ditions  were  particularly  appropriate 
for  its  growth.  Farm  life  was  a  con- 
stant struggle.  Tillage,  trade  and  family  life 
were  in  a  crude  state.  Farm  implements  were 
primitive,  fertilizers  scanty,  fodder  poor,  cattle 
lean,  rents  oppressive,  money  scarce,  and 
wages  low;  and  the  usurer,  as  usual,  was  in 
control,  charging  from  50  to  1,200  per  cent,  and 
often  a  Sunday  dinner  as  a  bonus.  The  pov- 
erty and  ignorance  of  the  peasantry  were,  and 
still  are,  almost  incredible.  After  the  depres- 
sion of  1880  there  was,  according  to  \Volff, 
scarcely  anything  left  to  work  for.  Live  as 
economically  as  he  could,  all  the  peasant's  toil 
went  to  enrich  the  oppressor.  To-day  Italy 
has  over  10,000,000  farmers  out  of  a  popula- 
tion of  35,000,000,  and  all  are  small  farmers, 
and  65,000,000  acres  out  of  a  total  of 
71,000,000  have  been  made  productive. 

The  First  Rural  Society 

(Cassa  Rurauj 

The  fame  of  the  German  village  banks  had 
crossed  the  Alps;  but  hearing  the  message 
they  had  to  bring,  the  people  lacked  the  faith 
(or  a  leader)  to  institute  the  movement. 

It  was  not  until  1883,  in  the  Venetian  home 
of  Loreggia,  that  the  first  "Cassa  Rurali"  was 
started  by  Dr.  Leone  Wollemborg,  with  an 
enlistment  of  2,2  members.  To  provide  the 
first  funds  the  Doctor  advanced  $400;  to 
which  was  added  some  thousand  dollars,  which 
the  bank  managed  to  attract  by  way  of  de- 
posits, supplemented  by  a  loan  of  S800  ad- 
vanced by  the  public  savings  bank  of  Padua. 
At  the  close  of  the  first  quarter's  operations, 
great  was  the  surprise  of  the  borrowers  to 
receive  notice  that  their  money  had  cost  them 
i^  per  cent. — an  incredible  proposition! 
And  rather  than  stint  the  accretions  to  reserve, 
they  actually  voted  to  maintain  6  per  cent, 
interest,  a  rate  somewhat  higher  than  neces- 
sary. To-dax  there  are  over  1,800  of  these 
banks  in  Italy,  doing  one-half  the  country's 
banking  business. 

The  Organization 

The  Cassa  Rurali  are  organized  along  the 
Raiffeisen  lines,  the  associations  at  the  begin- 
ning being  smaller  and  more  needy  than  those 
of  Germany.  The  members  meet  oftener  and 
administer  the  affairs  more  in  common,  being 
linked  together  in  the  bond  of  common  pov- 
erty.   Expenses  are  cut  to  the  minimum,  one 


38 


bank's  annual  expenditure  being  less  than  $15. 
So  high  do  these  banks  stand  in  popular 
estimation  that  the  deposit  money  of  the 
community,  instead  of  finding  its  way  into 
the  postal  savings  banks,  waits  for  the  fort- 
nightly meeting  of  the  village  bank,  because 
it  is  their  own.  For  loans  they  have  nowhere 
else  to  go.  To  join  the  bank,  a  man  need  be 
but  honest,  sober,  thrifty,  trusted,  well- 
behaved,  and  able  to  read  and  write — a  little. 
The  illiterate  learn  to  write  just  to  be  able  to 
qualify,  for  every  member  must  be  able  to 
sign  his  name.  Drinking  is  "/a^M,"  and  the 
rules  demand  guarantee  of  personal  morality. 
Loans  are  usually  made  for  three  weeks,  but 
can  be  renewed. 

The  Wollemborg  banks  were  non-sectarian, 
but  from  1892  onwards  many  banks  were 
formed  as  the  result  of  the  propaganda  of 
the  Catholic  Party,  and  have  increased  stead- 
ily until  they  form  the  dominant  class,  num- 
bering 1,200  out  of  the  1,800  village  banks  of 
Italy.  The  Catholic  banks,  while  holding  to 
the  character  test,  also  advocate  certain  relig- 
ious observances — at  least,  respect  for  religion. 

Following  the  Raiffeisen  idea,  liability  is 
unlimited.  Deposits  are  received  from  mem- 
bers and  non-members,  the  interest  rate  being 
from  3^  to  4  per  cent.  On  January  i,  191 1, 
the  deposits  amounted  to  60,000,000  francs. 

Loans  are  made  for  short  periods,  not  ex- 
ceeding two  years,  renewed  every  three  months, 
extending  up  to  ten  years,  on  the  installment 
or  amortized  plan.  The  rate  is  from  5^  to 
7  per  cent.,  the  profit  going  to  reserve,  or  on 
dissolution,  to  some  public  purpose. 

There  is  a  slight  departure  from  the  true 
Raiffeisen  order,  a  "sindaci"  being  established, 
five  in  number,  who  must  not  be  in  any  way 
related,  by  consanguinity  or  affinity,  to  any 
member  of  the  managing  committee,  within 
the  fourth  degree.  The  sindaci  acts  singly, 
looking  after  the  affairs  of  the  bank  daily, 
thus  bringing  an  intermingling  of  reviewing 
and  administrative  functions. 

The  Executive  Committee  consists  of  a 
President,  elected  for  four  years,  Vice-Presi- 
dent, and  five  members,  elected  for  two.  A 
modest  share  capital  is  recommended,  in  addi- 
tion to  a  small  non-returnable  entrance  fee. 
In  the  main,  however,  they  follow  the  Raif- 
feisen tj-pe,  with  simple  borrowing  and  lend- 
ing, careful  checking,  low  operative  expenses, 
caution  in  granting  credit,  risks  avoided,  with 
the  result  that  losses  have  been  scarcely  per- 
ceptible. 


\ ' 


v^ 


u 


Japan 


WHEN  modern  Japan  awakened  to 
the  need  of  western  methods  for 
her  industrial  and  commercial  devel- 
opment, she  delegated  her  ablest 
men  to  study  the  systems  of  business  in  every 
leading  country  and  adopted  them  with  such 
modifications  as  seemed  desirable  for  her 
special  requirements. 

Thus  she  created  a  great  central  bank  for 
the  currency  function,  the  regulation  of  dis- 
count rates  and  the  supervision  of  the  local 


commercial  banks;  then  a  special  bank  was 
established  for  the  financing  of  the  foreign 
trade;  then  a  colonial  bank,  a  national  mort- 
gage loan  bank,  a  national  industrial  bank, 
and  local  agricultural  and  industrial  banks. 
There  are  also  private  savings  banks  and  a 
postal  savings  system.  Thus  there  was  worked 
out  a  consistent  and  comprehensive  scheme  of 
finance  that  has  helped  enormously  to  build 
up  the  empire.  It  was  an  example  of  wise 
despotic  government  working  out  beneficially. 


The  Hypothec  Bank  of  Japan 

(  NIPPON-KWANGYO-GINKO  ) 


THE  Hypothec  Bank  of  Japan  is  a  stock 
corporation  created  in  1896,  to  make 
long-term  loans  on  real  estate  mortgages 
at  low  rates,  particularly  to  agricultur- 
ists. It  may  make  such  loans  for  periods  up 
to  fifty  years,  repayable  in  installments  by 
amortization,  or  for  five  years  repayable  in 
one  sum;  it  may  also  lend  to  municipalities 
on  their  bonds,  and  to  the  agricultural  and 
industrial  banks  on  debentures  which  they 
are  permitted  to  issue;  it  may  also  receive 
trust  funds  and  invest  them. 

Capital 

The  bank  has  a  capital  of  20,000,000  yen 
($10,000,000.)  divided  into  100,000  shares  of 
200  yen  ($100.)  each. 

Loans  (Restrictions) 

All  mortgages  must  be  first  liens,  and  prop- 
erty must  yield  a  sure  and  permanent  income. 
Limit  of  loan,  two-thirds  the  appraised  value 
as  made  by  the  Bank.  Fishing  rights  subject 
to  same  ratio. 

With  the  exception  of  loans  made  on  secur- 
ity of  lands  or  buildings,  and  the  mass  of  prop- 
erties belonging  to  factories,  the  total  amount 
of  loans  made  on  security  of  land  or  buildings 
in  places  subject  to  municipal  administration 
and  in  towns  designated  by  Imperial  ordi- 
nance, may  not  exceed  one-half  the  total  paid- 
up  capital  and  debentures  issued. 

No  loans  are  made  on  land  falling  under 
Art.  4  of  the  Land  Tax  Regulations  of  1884. 
No  loans  are  made  on  schools,  temples,  hospi- 
tals, theatres,  and  other  public  buildings,  and 
the  sites  thereof. 

No  loans  are  made  on  mines,  collieries,  quar- 
ries, swamps,  mineral  springs,  commons  and 
property  owned  jointly,  except  on  consent  of 
all  interests.  Loans  are,  however,  permitted 
on  fish  hatcheries  yielding  a  sure  income. 


29 


The  borrower  pays  the  expenses  of  appraisal. 
The  property  must  be  insured  except  in  cases 
where,  in  addition  to  the  primary  security, 
property  double  the  value  of  the  loan  is 
offered  as  collateral.  Any  alteration  in  the 
form  of  the  security,  any  change  in  title,  with- 
out consent  of  the  bank,  subjects  the  loan  to 
immediate  call. 

Except  in  case  of  prefectures,  counties,  cities, 
towns,  villages  or  other  public  bodies  and 
arable  land  readjustment  associations,  no 
loans  in  excess  of  10  per  cent,  of  the  paid-up 
capital  may  be  made. 

Loans  paid  in  part  or  whole  before  due 
according  to  the  original  contract  are  subject 
to  a  small  fee,  not  exceeding  two  per  cent,  of 
the  amount  repaid. 

Compound  interest  may  be  charged  delin- 
quents, and  payments  may  be  anticipated  by 
the  debtor.  When  one-fifth  of  the  loan  is  paid, 
a  release  may  be  granted  for  a  proportionate 
amount.  Failure  to  pay  installments  and 
deterioration  of  the  security  also  subjects  the 
loan  to  call. 

The  maximum  rate  of  interest  is  fixed  at 
the  beginning  of  the  year,  with  approval  of  the 
Minister  of  Finance,  but  may  be  changed. 

Deposits  and  Surplus — How 
Employed 

Deposits  and  surplus  funds  may  only  be 
used  to  purchase  national  loan  bonds,  or  other 
negotiable  instruments  approved  by  the  Min- 
ister of  Finance,  deposits  in  banks  approved 
by  him  or  in  the  Deposit  Section  of  the  De- 
partment of  Finance,  discounts,  short  term 
loans  secured  by  loan  bonds  mentioned  above, 
agricultural  products,  aquatic  or  industrial 
products. 

The  balance  sheet  for  December  31,  1912, 
shows  capital  stock  of  20,000,000  yen;  re- 
serve, 3,321,400  yen;  total  debentures  issued, 


AGRICULTURAL      CREDIT      BANKS 


- 


i4 
O 
H 

i4 

< 

o 

n 

o 


160,292,290  yen;  due  other  banks,  1,006,835 
yen;  deposits  and  current  accounts,  1,479,731 
yen;  profits,  1,139,745  yen.  Loans  redeemable 
in  annual  installments,  152,144,646  yen;  bills 
discounted  1,025,996  yen;  deposits  with  the 
Deposit  Bureau  of  the  Department  of  Finance, 
18,223,035  yen;  deposits  in  other  banks, 
4,633,597  yen,  and  total  assets  of  191,225,562 
yen. 

Distribution  of  Profits 

The  net  profits  are  distributed  as  follows: 
(a)  Eight  or  more  per  cent,  to  reserve  for  sup- 
plementary losses,  which  fund  may  be  employed 
to  make  up  any  deficit  in  capital  caused  by 
losses,  (b)  Two  or  more  per  cent,  as  reserve 
fund  to  equalize  dividends,  which  fund  can  be 
employed  to  make  up  dividends  in  case  they 
fall  short  of  the  5  per  cent.  rate,  (c)  Out  of 
the  remainder  a  dividend  of  5  per  cent,  on 
paid-up  capital,  (d)  Of  the  balance,  an  amount 
not  exceeding  10  per  cent,  of  net  profits,  as  a 
bonus  to  principal  officers;  the  remainder 
going  to  stockholders  as  extra  dividends,  or 
carried  to  special  reserve.  In  case  the  divi- 
dends fall  short  of  5  per  cent,  per  annum,  the 
Government  shall,  for  a  period  of  not  over  10 
years  from  date  of  establishment  of  the  bank, 
grant  a  subsidy  of  not  over  five  per  cent,  of 
the  capital,  to  cover  the  deficiency. 

Debentures 

H}'pothec  Debentures  have  a  minimum  face 
value  of  10  yen,  and  are  issued  in  registered 
or  coupon  form,  with  the  approval  of  the  Min- 
ister of  Finance.  The  issue  of  debentures  is 
Umited  to  10  times  the  paid-up  capital  and 
shall  not  exceed  the  amount  of  loans  redeem- 
able in  annual  installments  and  agricultural 
and  industrial  debentures  on  hand,  calculated 
at  the  price  paid  for  them.  Interest  is  pay- 
able semi-annually.  Debentures  are  kept  on 
a  par  with  outstanding  mortgages  by  drawing 
or  by  purchase,  two  or  three  times  a  year. 
Premiums  may  be  granted  subject  to  approval 
of  the  Minister  of  Finance.  Debentures  may 
be  refunded  at  a  lower  rate  of  interest  by 
drawings. 

For  converting  registered  into  coupon  de- 
bentures, and  vice  versa,  replacing  lost,  stolen 
or  mutilated  debentures,  and  changing  owner- 
ship of  registered  ones,  a  small  fee  is  charged. 

Failure  to  claim  the  principal  of  debentures 
for  15  years,  or  the  interest  for  five  years,  for- 
feits the  claim. 

The  debentures  have  a  rating  on  the  stock 
exchange  and  hence  have  a  ready  sale;  they 
rank  among  the  soundest  investments  offered 
to  the  public. 


Administration 

The  Minister  of  Finance  has  general  super- 
vision of  the  bank;  authorizes  branches,  ap- 
proves dividends,  receives  reports,  and  in  gen- 
eral directs  the  policy  of  the  bank.  The 
administration  of  the  bank  devolves  upon 
the  governor  and  vice-governor,  appointed 
by  the  Government  for  five  years,  from  among 
shareholders  holding  100  or  more  shares; 
three  to  five  directors  (number  determined 
at  a  general  meeting  of  shareholders),  and 
three  inspectors.  The  directors  are  appointed 
for  five  years  by  the  Government,  from  among 
candidates,  w^hose  number  must  be  double  the 
number  to  be  selected,  at  a  general  meeting  of 
shareholders  owning  50  or  more  shares.  In- 
spectors are  elected  for  three  years  at  a  gen- 
eral meeting  of  shareholders  from  among 
owners  of  30  or  more  shares. 

During  their  incumbency  the  governor  and 
vice-governor  shall  deposit  100  shares  each, 
and  directors  50  shares  each  of  the  bank  stock, 
with  the  inspectors.  The  governor  is  the 
representative  of  the  bank,  has  complete 
authority  over  employees,  signs  and  seals  the 
share  certificates,  debentures  and  other  doc- 
uments, presides  over  meetings,  etc. 

The  vice-governor  and  directors  assist  the 
governor,  and  act  as  department  heads. 

The  inspectors  have  supervisory  powers  over 
the  conduct  of  the  Bank,  affix  their  signatures 
to  debentures,  and  supervise  the  drawings 
for  and  cancellation  of  debentures. 

All  salaries  are  determined  by  the  general 
meeting  of  stockholders. 

Employees  and  principal  officers  are  not 
allowed  to  borrow  from  the  bank. 

Governor,  vice-governor  and  directors  may 
not,  during  their  term,  engage  in  other  busi- 
ness or  profession,  except  with  the  approval 
of  the  Minister  of  Finance. 

The  Government  inspectors  may  examine 
the  bank  at  any  time,  call  for  reports  and 
attend  meetings. 

Shareholders' 
General  Meeting 

General  meetings  of  shareholders  are:  (a) 
Ordinary,  January  and  July  of  each  year,  to 
review  the  work  of  the  half-year  as  submitted 
by  the  managing  officials,  and  vote  dividends, 
(b)  Extraordinary,  subject  to  call  at  14  days' 
notice,  either  on  the  initiative  of  the  governor, 
inspector  or  shareholders  holding  at  least  one- 
fifth  of  the  stock.  Shareholders  have  one  vote 
for  each  share.  Proxies  are  allowed,  but  no 
principal  officer  or  any  employee  may  so  act. 


31 


-  — T-55  .--assKipf^-.**!^^ 


J  -JPq 


WMt 


Agricultural  and  Industrial  Banks  in  Japan 


y^GRICULTURAL  and  Industrial  banks 
l\  were  created  for  t he  purpose  of  furnish- 
J.  \.  ing  credit  for  short  terms  to  farmers 
and  to  industrial  enterprises,  respec- 
tively, primarily  using  their  own  capital  for 
the  purpose.  They  may  also  receive  deposits 
and  in   case  of  need    may  issue   debentures. 


There  are  46  such  banks,  with  a  paid-up  capital 
of  29,000,000  yen;  they  have  currently  about 
35,000,000  yen  of  advances  or  loans;  they  carry 
about  8,000,000  yen  of  deposits  and  have  had 
to  raise  about  3,000,000  yen  on  debentures, 
to  meet  demands  for  loans. 


Austria  and  Hungary 


CO-OPERATIVE  endeavor  is  character- 
istic of  western  Europe,  and  in  no  sec- 
tion more  so  than  Austria  and  Hungary, 
with  17,000,000  farmers  out  of  a  total 
population  of  about  50,000,000.  There  were, 
according  to  Wolff,  6,977  registered  co-opera- 
tive societies  in  Austria  alone  in  1905,  nearly 
one-half  (3,306)  being  composed  of  Germans. 
There  are  also  Czech  (1918)  Polish  (878), 
Italian  (242),  Ruthenian  (223),  Slavonian 
(220),  Roumanian  (100),  and  Servo- Croatian 
(90)  societies. 

These  are  all  governed  by  the  same  law, 
very  much  like  the  German,  but  allowing  lim- 
ited liability  since  1873,  at  which  time  there 
were  943  societies.  Limited  liability  is,  there- 
fore, more  largely  practiced  in  Austria  than 
in  Germany.  In  1908  Austria  had  9,316  co- 
operative societies,  2,140  having  limited  and 
7,115  unlimited  liability;  6,575  of  the  latter 
were  Raiffeisen  societies,  5,880  of  these  banks 
ha\'ing  725,600  members  in  1907,  there  being 
in  1910  a  society  for  every  4,018  inhabitants. 
In  1 910  there  were  10,983  societies. 

The  fame  of  the  German  movement 
prompted  the  Austrian  Diet  to  send  experts 
to  investigate  these  banks  and  report,  and  in 
the  language  of  a  former  president,  they  came 
back  "delighted."  The  movement  then  began 
in  earnest,  so  that  in  1910,  after  sixty  years 
of  co-operative  endeavor,  there  was  not  a 
territory  in  which  there  were  not  duly  organ- 
ized, federated,  subventioned,  and  supervised 
Raiffeisen  banks.  These  banks  take  deposits, 
deal  out  loans,  and  in  addition    exercise  to 


the  great  benefit  of  the  rural  population,  the 
powers  of  collective  purchase  of  goods  for 
re-sale  to  members. 

The  movement  in  some  quarters  did  not 
take  root  until  1899,  when  the  local  govern- 
ment devoted  2,000,000  crowns  for  the  pur- 
pose of  financing  Raiffeisen  banks,  grants  of 
from  200  to  300  crowns  being  made  for  initial 
expenses,  and  loans  for  long  periods  without 
interest.  In  1909  the  Diet  of  Galicia  donated 
2,000,000  crowns  to  co-operative  credit,  which 
fund  is  now  administered  by  the  Provincial 
Bank  for  Co-operative  Societies  at  Leopoli. 
There  being  a  lack  of  rural  savings  banks,  these 
banks  have  attracted,  as  savings  agencies, 
more  cash  than  they  have  required  for  loans; 
and  in  no  country,  according  to  Dr.  Ertl,  of 
the  Austrian  Agricultural  Ministry,  has  so 
much  been  done  for  co-operation  by  the  State 
as  in  Austria,  where  the  government  has  been 
instrumental  in  forming  and  endowing  cen- 
tral banks,  directing  them,  promulgating 
rules,  and  really  "making  the  movement  go." 

What  is  true  in  the  case  of  Austria  has  been 
true  of  Hungary.  The  first  society  was  a 
"Thrift  and  Help  Society"  for  artisans, 
founded  in  1851,  others  following  in  1854  and 
1857,  until  in  1909  there  were  3,467  co-opera- 
tive societies.  Of  3,088  societies  making  re- 
turns in  1904,  1,576  were  of  the  Raiffeisen 
type.  The  interest  rate  runs  from  5^  to  8 
per  cent,  and  the  total  working  capital  is 
about  $75,000,000,  a  fair  portion  coming 
from  the  Government  in  the  form  of  loans  at 
a  low  rate  of  interest. 


Belgium 


CO-OPERATIVE  credit  in  Belgium  dates 
from  1884.  Under  the  law  of  that  year 
the  General  Savings  Bank  was  au- 
thorized to  make  loans  to  farmers  and 
co-operative  credit  societies,  through  the  me- 
dium of  a  special  kind  of  association  known 
as  "comptoirs,"  or  "comptoirs  agricoles," 
which  are  small  corporate  bodies,  consisting 


of  at  least  four  persons  who,  for  a  small  com- 
mission, guarantee  the  loans  granted  to  indi- 
viduals by  the  aforesaid  bank,  thus  acting  as 
the  intermediary  between  the  savings  bank 
and  the  borrower.  During  the  period  1884- 
1909,  only  16  such  societies  were  formed  in  the 
whole  of  Belgium.  On  January  i,  1910,  there 
were  3,605  loans  outstanding,  so  guaranteed, 


32 


>. 


AGRICULTURAL      CREDIT      BANKS 


684  of  which  were  granted  in  1909.  The 
movement  serves  the  large  rather  than  the 
small  farmer.  The  business  is  not  sufficiently 
remunerative  to  warrant  the  risk. 

Central  Banks 

All  the  rural  banks  are  affiliated  with 
regional  central  banks.  Each  member  sub- 
scribes for  one  share  of  stock  at  the  value  of 
100  francs  and  is  liable  up  to  1,000  francs  for 
each  share  subscribed.  The  dividend  is  fixed 
at  3  per  cent.,  and  the  balance  is  carried  to 
reserve. 

These  central  banks  accept  deposits  from 
the  local  banks,  loan  to  them,  supervise  the 
management  and  inspect  the  books. 

The  General  Savings  Bank,  by  the  law  of 
1894,  set  aside  1,000,000  francs  to  be  lent  to 
the  rural  banks  at  3^  per  cent.,  which  loans 
are  guaranteed  by  the  central  banks  for  a  small 
commission.  This  permits  the  local  bank  to 
lend  to  the  farmers  at  4  per  cent.     Excess 


money  in  the  central  banks  may  be  deposited 
in  the  General  Savings  Bank  at  3  per  cent. 
There  are  seven  central  banks  in  Belgium, 
the  most  important  being  the  Boerenbond, 
which  in  19 10  had  affiliated  with  it  304  out  of 
643  Raiffeisen  Banks. 

Raiffeisen  Banks  in  Belgium 

To  the  Abbe  Mellaerts  belongs  the  credit  of 
adapting  Raiffeisenism  to  Belgium,  the  first 
bank  being  founded  in  1892,  since  which  time 
the  system  has  spread  rapidly.  The  shares 
are  very  small  (2  francs)  and  the  dixidends  do 
not  exceed  the  rate  charged  on  loans.  There 
are  two  reserve  funds,  the  "real"  and  the 
"conditional,"  the  former  consisting  of  share 
payments  and  entrance  fees,  and  the  latter 
the  accumulated  net  profits. 

There  are  over  643  co-operative  banks  of 
this  type  in  Belgium,  the  membership  of  458 
being  25,762  in  1910,  with  total  working  capi- 
tal of  22,020,786  francs. 


Russia 


RUSSIA  is  not,  strictly  speaking,  an 
agricultural  country,  but  one-eighth 
of  the  population,  or  about  20,000,000 
out  of  1 70,000,000,  being  farmers,  and 
these  have  been  backward  in  adopting  the  co- 
operative idea  of  banking.  Nevertheless  there 
are  about  1,800  societies  of  the  Schulze- 
Delitzsch  type  and  3,100  societies  of  small 
credit,  patterned  after  the  Raiffeisen  banks. 
The  latter  have  over  1,500,000  members. 

As  in  other  countries  the  borrower  was  at 
the  mercy  of  the  private  money-lender,  who 
charged  from  60  to  240  per  cent.  The  peasant 
now  pays  from  4 >^  to  12  per  cent,  for  money. 
The  Government  has  subsidized  agriculture 
to  the  extent  of  $40,000,000  at  5  per  cent, 
interest.  Twenty  or  more  farmers  may  form 
a  society  by  petitioning  the  Minister  of  Fi- 
nance, w^ho  sends  an  inspector  to  examine  the 
land.  Upon  favorable  report  the  organization 
receives  from  $500  to  $1,500  as  foundation 
capital  for  a  period  of  thirteen  years,  and 
from  $1,000  to  $50,000  for  one  year  as  work- 
ing capital.     They  may  receive  deposits  and 


JDorrow  funds  from  joint-stock  banks  and 
individuals. 

Loans  are  made  for  current  use,  running 
one  year;  those  for  purchase  of  agricultural 
machinery,  running  three  years,  and  for  per- 
manent improvements  running  five  years. 

Sixty  per  cent,  of  the  net  earnings  of  the 
society  goes  into  the  surplus  or  reser\'e  fund. 
On  entering  the  society  a  member  must  de- 
posit 10  per  cent,  of  the  amount  he  desires  to 
borrow. 

Shares  in  loan  associations  run  from  $2  to 
$50,  which  form  the  foundation  capital,  while 
a  government  loan  forms  the  working  capital. 
Borrowing  without  security  is  limited  to  $150, 
but  on  pledge  of  grain  and  other  products 
members  can  borrow  up  to  $500.  The  average 
loan  is  $150. 

There  are  also  over  twenty  mortgage  banks 
in  Russia  with  millions  of  debentures  out- 
standing. A  "nobles'  bank"  and  a  "peasants' 
bank"  are  designed  to  put  the  farmer  in  pos- 
session of  the  land  he  cultivates. 


Sv^itzerland 


SWITZERLAND  is  said  to  have  a  sa\dngs 
bank  for  every  seven  or  eight  square 
miles   of   territory,   and    100,000   farms 
under  seven   acres;  and,  barring  Den- 
mark, there  is  no  country  where  thrift  is  so 
methodically  practised.     The  thrift  agencies 


take  the  form  of  savings  banks  with  numerous 
branches  encouraging  small  deposits,  and  lend- 
ing freely  on  mortgage  security;  mortgage 
banks,  securing  funds  by  bond  issues;  co-op- 
erative cattle  purchase  associations,  and  can- 
tonal funds  raised  by   means  of   loans,  and 


33 


'« 


AGRICULTURAL     CREDIT      BANKS 


devoted  to  the  purchase  of  cattle  for  the  in- 
h  abitants.  In  1908  there  were  55  co-operative 
credit  societies  and  about  a  hundred  village 
banks,  most  of  them  of  comparatively  niodern 
origin.  The  former  issue  shares  and  limited 
liability  predominates.  The  shares  run  from 
200  to  500  francs,  but  as  high  in  one  or  two 
instances  as  2,000  francs,  and  as  low  as  10 
francs  in  others.  There  is  no  union  of  these 
popular  banks;  no  complete  statistics  are 
available,  and  no  uniformity  of  methods 
obtains. 

Banque  Populaire  Suisse 

The  leading  bank  of  the  co-operative  type 
is  the  Sckweizerische  Volksbank  {Banque  Popu- 
laire Suisse),  formed  in  1869  with  capital  of 
$525.  At  the  beginning  of  1910  it  had  48,133 
members,  55.775,938  francs  capital  and  assets 
of  349,871,000  francs.  The  bank  operates 
14  branches  and  employs  nearly  500  people. 


It  favors  cash  credits  in  lending  and  in 
1909  discounted  bills  to  the  amount  of  287,- 
701,800  francs,  besides  over  200,000,000  francs 
loaned  on  cash  credits  and  specific  advances. 
It  secures  funds  from  deposits,  both  commercial 
and  savings,  and  debenture  bond  issues. 
Every  branch  manages  its  own  affairs,  with 
proper  officials  in  charge,  all  under  the  general 
supervision  of  the  head  office. 

The  Raififeisen  movement  in  Switzerland 
dates  from  1887,  the  first  bank  being  formed 
at  Schossdale,  with  twenty  members.  The 
government  granted  a  subsidy  of  500  francs. 
From  1900  the  movement  spread  more  rap- 
idly, the  banks  in  1902  forming  a  federation, 
so  that  in  1906  there  were  56  societies  with 
3,300  members.  In  1908  the  banks  numbered 
about  100,  with  a  membership  of  over  6,000, 
organized  along  strictly  Raiffeisen  lines. 
Money  costs  the  Swiss  farmer  4}4  per  cent, 
with  one  per  cent,  additional  for  amortization. 


Holland 


HOLLAND,  like  its  neighbor,  Germany, 
is  particularly  well  supplied  with  co- 
operative agricultural  societies,  there 
being  1,436  of  these  organizations 
with  a  membership  of  over  1 56,000.  There  are 
735  co-operative  credit  banks  with  three  cen- 
tral banks,  which  in  turn  are  affiliated  with  the 
Netherlands  Bank.  In  19 10  the  1,100  co-op- 
erative societies  operating  at  that  time  bought 


for  their  91,000  members  over  $10,000,000 
worth  of  artificial  manure,  food-stuffs  and  seed. 
Out  of  900  creameries,  700  were  co-operative. 
There  are  mutual  live-stock  insurance  societies 
in  large  numbers,  mutual  accident  insurance 
societies  for  farmers  and  farm  laborers,  and 
about  100  co-operative  societies  for  the  disposal 
of  fruit  and  vegetables.  The  average  cost  of 
money  to  the  farmer  k  4H  P^^"  <^^"t- 


England  and  Ireland 


A  S  BEFORE  stated,  co-operative  credit 
Z\  for  the  farmer  has  never  gained  a  foot- 
JlV  hold  in  England,  although  its  most  bril- 
liant writer  and  enthusiastic  supporter 
(Henry  W.  Wolff)  is  an  Englishman.  The 
reason,  no  doubt,  lies  in  the  system  of  land 
tenure;  England  being  a  country  of  large  hold- 
ings. The  farmer  may  receive  notice  to  quit 
after  having  been  on  a  piece  of  land  for  many 
years,  even  generations.  Or,  he  may  be  driven 
out  by  excessive  rent  after  considerably  im- 
proving his  holding.  The  setting  for  co- 
operative credit,  elsewhere  mentioned,  is 
not  there,  for  it  is  obvious  that  in  a 
country  of  large  holdings,  co-operative  credit 
banks  are  not  likely  to  succeed.  The 
small  farmers  of  England  are  thus  with- 
out security  of  tenure,  which  is  liable  to  be 
terminated  at  short  notice,  and  the  effect  of 
its  existence  is  to  deter  tenants  from  spending 
labor  and  capital,  borrowed  or  otherwise,  on 
their  holdings  which  they  otherwise  would. 


The  small  holdings  and  allotment  act  of 
1907,  however,  empowered  county  councils  to 
acquire  by  compulsion,  if  necessary,  land  suit- 
able for  small  holdings  (five  to  fifty  acres) 
and  make  allotments  (under  one  acre),  which 
the  tenant  holds  as  tenant  of  the  council;  and 
a  tenant  who  improves  his  holding  at  his  own 
expense  is  no  longer  in  danger  of  losing  his 
holding  and  the  capital  sunk  in  it,  or  in  the 
alternative  paying  rent  upon  his  own  im- 
provement. Conditions  are  therefore  becoming 
better  for  co-operative  banking  in  Britain. 

In  Ireland,  however,  the  case  is  different, 
and  they  have  had  a  fair  degree  of  success. 
With  few  exceptions,  the  banks  follow  closely 
the  German  system.  Poverty,  provided  it  is 
not  the  result  of  drunkenness  or  thriftlessness, 
is  no  bar  to  membership.  There  are  no  shares, 
and  liabilitv  is,  as  a  rule,  unlimited;  which 
liability  continues  for  a  year  after  cessation  of 
membership,  for  all  debts  incurred  before 
severing  the  relationship.     A  small  entrance 


34 


.> 


T 


AGRICULTURAL      CREDIT     BANKS 


fee  is  charged.  Besides  the  deposits,  usually 
carrying  ^}4  per  cent,  interest,  funds  for  co- 
operative credit  banking  in  Ireland  are  ob- 
tained from  the  joint-stock  banks  on  loan 
account,  usually  at  4  per  cent.,  and  advances 
from  those  friendly  to  the  movement.  Ad- 
vances are  also  made  by  the  Congested  Dis- 
trict Board  for  Ireland,  and  the  Department 
of  Agriculture  and  Technical  Instruction  for 
Ireland.  The  loans  from  stock  banks  are  now 
the  most  important  source  of  supply,  affording 
to  the  societies  a  steady  supply  of  funds  and  to 
the  banks  a  steady  market  for  money.  The 
rates  charged  borrowers  are  around  6  per  cent, 
in  order  to  build  up  reserve. 

The  movement  in  England  has  not  gained 
momentum  enough  to  attract  the  assistance  of 
the  established  banks,  although  a  Central  Co- 


operative Agricultural  Bank  has  been  formed 
to  assist  them  in  finding  capital,  five  shares 
valued  at  £1  each  in  the  central  bank  being 
essential  to  participate. 

In  1910  Ireland  had  237  societies,  with 
membership  (208  societies  reporting)  of  18,422 
and  total  assets  of  about  $285,000. 

England,  at  the  end  of  19 10,  had  40  soci- 
eties. Thirty-one  societies  had  663  members, 
an  average  of  21,  as  against  65  for  Ireland  and 
92  for  Germany.  From  1908-10  27  societies 
were  formed.  In  191  o  the  deposits  were 
£1,089,  and  £488  were  on  loan  from  banks. 
No  funds  have,  up  to  191 2,  come  to  English 
banks  through  government  sources,  although 
several  attempts  have  been  made  to  bring 
government  aid  to  these  institutions. 


Canada's  Credit  Unions 


THE  co-operative  credit  banks  of  Can- 
ada, commonly  called  "credit  unions," 
are  patterned  after  the  German  banks 
and  combine  features  found  in  both 
the  Raiffeisen  and  Schulze-Delitzsch  systems. 
The  movement  dates  from  December,  1900, 
being  originated  by  Mr.  Alphonse  Desjardins, 
president  of  the  Levis  (Quebec)  Credit  Union. 
In  1909  in  all  but  one  of  the  22  societies  the 
shares  were  $5,  payable  in  weekly,  semi- 
monthly, or  monthly  installments,  payments 
as  low  as  ten  cents  a  week  being  permitted. 
Savings  deposits  are  received  subject  to  fixed 
rate  of  interest,  but  only  members  are  allowed 
to  deposit.  The  real  strength  lies  in  a  com- 
bination of  limited  liabiUty  and  strong  re- 
serve, the  latter  often  being  equal  to  the 
capital.  The  liability  lasts  only  so  long  as  the 
shares  are  not  withdrawn  (withdrawals  are 
allowed  at  any  time),  and  the  reserve  is  built 
up  by  entrance  fees  and  profits,  20  per  cent, 
of  the  latter  being  no  unusual  amount  to 
set  aside.  This  "rest  fund"  runs  from  12  to 
20  per  cent,  of  the  assets,  although  from  7  to 
1 2  per  cent,  is  considered  ample.  The  by-laws 
of  some  societies  forbid  any  dividend  above 


7  per  cent,  until  the  rest  fund  reaches  the 
maximum. 

The  societies  have  no  dealings  vsith  non- 
members  and  give  preference  to  small  and 
short-time  loans  payable  in  installments; 
but  loans  for  longer  periods,  running  up  to 
fifteen  years  are  permitted.  The  supreme 
power  rests  with  the  general  assembly  of 
stockholders.  The  Board  of  Administration 
has  general  powers  of  supervision  and  control, 
regulates  the  admission  of  members,  transfers 
of  stock,  rate  of  dividends,  amendments  to 
by-laws,  etc.,  and  makes  appointments  to  non- 
elective  offices.  The  Commission  of  Credit 
passes  upon  loans,  security,  rate  of  interest 
charged,  etc.,  and  the  members  thereof  can- 
not borrow  directly  or  indirectly  any  of  the 
funds  of  the  bank.  The  Commission  of  Super- 
vision has  general  powers  of  audit.  Only  one 
person,  the  president,  may  be  on  more  than 
one  board. 

As  in  the  European  systems,  borrowing  is 
allowed  for  productive  purposes  only.  The 
movement  is  fast  spreading  throughout  Can- 
ada, and  adequate  laws  covering  the  operation 
of  these  unions  are  now  being  drafted. 


35 


I 


• ) 


r 


Denmark 


THE  Danske  Landmandsbank,  capital- 
ized at  75,000,000  kroner,  with  reserve 
of  14,400,000  kroner  was  formerly  the 
chief  mortgage  bank  of  Denmark,  and 
dates  from  1872.  The  mutual  credit  associa- 
tions have  however,  in  course  of  time  taken 
over  almost  exclusively  the  mortgage  loan  busi- 
ness, the  Landmandsbank  now  confining  itself 
to  other  branches  of  banking.  Debenture 
bonds  of  this  bank  were  outstanding  on  January 
I,  19 1 3,  to  the  amount  of  19  million  kroner 
and  up  to  the  same  date  the  bank  had  granted 
loans  to  Danish  municipalities  amounting  to 
28  million  kroner. 

Co-operative  banking  in  Denmark  dates 
from  1850  and  there  are  now  about  ten  such 
societies.  The  underlying  principle  is  that 
each  society  should  be  a  bona-fide  organiza- 
tion of  borrowers,  and  borrowers  only,  combin- 
ing their  liability  in  order  to  make  it  go  further. 
There  is  no  need  for  share  capital,  but  a  re- 


serve is  created  as  fast  as  possible.  These 
societies  issue  bonds  which  are  readily  absorbed 
by  the  Danish  Savings  Banks  and  private  in- 
vestors and  are  in  high  repute. 

The  State  does  not  assist  with  money  except 
in  case  of  a  few  small  societies  in  Jutland  and 
the  Danish  Islands,  established  to  help  the 
very  small  owners,  but  allows  franking  privi- 
leges, exemption  from  stamp  duty  in  respect 
to  bonds,  (but  not  mortgages)  and  grants  a 
speedy  method  of  foreclosure.  Bonds  are 
legalized  for  trust  funds. 

Before  chartering  it  requires  a  certain  volume 
of  intended  business  to  be  shown,  and  demands 
a  collective  bond  in  joint  liability  up  to  the 
full  value  of  the  property  pledged.  Each 
society  is  limited  to  a  certain  district.  The 
Government  supervises  their  workings  and 
approves  all  rules  and  regulations.  The  man- 
agement has  proven  absolutely  safe,  losses 
have  been  trifling  and  foreclosures  few. 


Egypt 


THE  Agricultural  Bank  of  Egypt  was 
organized  in  1902.  It  is  particularly 
adapted  to  making  land  loans.  All 
the  agricultural  loans  of  the  Na- 
tional Bank  of  Egypt  were  transferred  to  it 
when  it  was  organized.  The  authorized  capi- 
tal was  $12,500,000.  Two  classes  of  loans 
were  authorized,  (a)  loans  up  to  $100,  and 
not  exceeding  as  a  rule,  twice  the  annual  land 
tax,  and  payable  in  one  sum,  with  a  maxi- 
mum period  of  15  months;  (b)  loans  up  to 
$1500  and  not  to  exceed  as  a  rule,  10  times 
the  tax  paid  to  the  government.  These  loans 
were  to  be  amortized  and  secured  by  first  mort- 
gage on  a  50  per  cent,  valuation.  The  maxi- 
mum time,  2o3^  years.  The  rate  of  interest 
was  fixed  at  9  per  cent.  The  collecting  was 
through  the  tax  collectors,  as  in  the  National 
Bank  of  Egypt,  which  became  the  largest 
stockholder.  The  Agricultural  Bank  of 
Egypt  now  has  a  practical  monopoly  of 
small  agricultural  loans. 

The  administration  is  in  the  hands  of  a 
board  composed  of  the  Governor  of  the  National 
Bank  of  Egypt,  as  president,  and  five  other 
members,  two  of  whom  are  chosen  from 
among  the  members  of  the  board  of  directors 
of  the  National  Bank  of  Egypt. 

The  most  important  feature  of  this  bank  is 
the  governmental  guaranty  of  dividends  on 
the  capital  stock  of  the  land  bank. 

The  income  of  the  bank  arises  from  the 
following  receipts: 


(a)  Interest  actually  received  annually. 

(b)  Loans  and  installments  due  and  received. 
Charges  are  as  follows: 

(a)  Operating  expenses. 

(b)  Unpaid  loans  and  installments. 

Out  of  the  profits  is  taken  in  the  following 
order: 

(a)  Interest  on  the  bonds. 

(b)  Five  per  cent,  of  interest  actually  re- 
ceived every  year  for  the  reserve  fund,  which 
is  invested  in  securities  approved  by  the 
government,  interest  from  such  investments 
being  added  to  the  reserve  fund. 

(c)  Interest  on  preferred  shares. 

(d)  Five  per  cent,  for  the  National  Bank  of 
Egypt,  as  remuneration  for  transacting  the 
financial  operations  of  the  Agricultural  Bank. 

(e)  Five  per  cent,  interest  to  the  ordinary  or 
common  stock. 

The  balance  is  distributed,  one-half  to 
ordinary  shares  and  one-half  to  deferred. 
If,  during  any  year,  the  interest  received,  to- 
gether with  sums  due  upon  loans  or  install- 
ments due,  and  unpaid,  do  not  reach  a  sum 
necessary  to  cover  all  expenses  of  the  year  and 
amounts  due  on  loans,  and  a  sum  representing 
3  per  cent,  on  the  capital  invested  in  loans  to 
the  fellahs,  the  additional  sum  shall  be  taken 
out  of  the  reserve;  and  if  the  reserve  is  in- 
sufficient, the  government  will  pay  to  the 
company,  by  February  15th,  of  each  year,  the 
balance  necessary. 


37 


Credit  Foncier  Egyptian 


THE  Credit  Foncier  Egyptian  is  organ- 
ized after  the  plan  of  the  Credit  Fon- 
der of  France,  as  are  all  land  banks 
whose  sphere  of  operation  is  national. 
It  was  chartered  for  99  years  from  January  i, 
1880.  The  original  capital  of  40  million  francs 
has  been  increased  to  200  million,  one-half  of 
which  has  been  paid  in.  The  Company  loans 
on  mortgage  security  for  long  or  short  time 
periods,  the  latter  without  amortization,  the 
former  on  the  annuity  plan,  from  10  to  50 
years. 

Its  funds  are  derived  from  the  sale  of  bonds, 
classified  as  follows: 

(a)  With  or  without  the  lottery  privileges; 
(b)  with  or  without  premiums;  (c)  with  ac- 
cumulated or  capitalized  interest ;  (d)  redeemed 
yearly  or  matured  after  a  certain  period. 

The  total  amount  of  bonds  issued  shall  not 
exceed  the  amount  due  the  society  from 
mortgages  and  the  interest  rate  shall  not  be 
lower  than  3  per  cent,  in  addition  to  the  premi- 
ums. 

It  may  loan  money  to  syndicates,  hospitals 
or  other  public  institutions  with  or  without 
mortgage  security.  It  may  buy  mortgages, 
open  current  accounts  on  mortgages  and  dis- 
count bills  with  collateral.  Deposits  on  in- 
terest are  limited  to  one-half  the  capital. 
The  governing  body  is  a  board  of  directors 
numbering  not  less  than  12  nor  more  than  17. 
The  general  meeting  of  the  shareholders  is 
open  only  to  holders  of  50  shares,  which  en- 
titles the  holder  to  one  vote.  The  limit  to 
one  shareholder  is  15  votes. 

The  net  profits  are  distributed  as  follows: 

A  6  per  cent,  dividend  to  capital,  after 
which  10  per  cent,  of  the  remainder  goes  to 
the  reserve  fund,  5  per  cent,  to  board  of 
directors,    15   per   cent,    to   deferred   shares. 


(2,000  of  which  were  originally  issued  without 
par  value)  and  70  per  cent,  to  the  capital 
stock. 

The  bonds  with  lottery  privileges  are  en- 
titled to  participate  in  a  dra^^'ing  on  the  15th 
of  each  month,  12  of  which  are  drawn  by  lot 
each  month  and  the  chosen  numbers  awarded 
prizes.      Six  times  a  year  the  first  prize  is 
100,000  francs,  and  six  times  50,000  francs; 
the  second  prize  is  10,000  francs  with  10  other 
prizes  of  1,000  francs  each.    All  lottery  bonds 
draw  3  per  cent,  and  were  issued  in  1886,  1903 
and  191 1.     Bonds  having  no  lottery  privileges 
bear  ^}/^  and  4  per  cent,  interest.    The  total 
outstanding  bonds  amount  to  $116,975,436. 
The  mortgage  loan  methods  are  very  much 
like  those  of  the  Credit  Foncier  of  France.    The 
applicant  applies  at  the  local  office  for  the  loan 
desired,  giving  his  name  and  address,  amount, 
purpose  of  the  loan,  the  time  to  run,  manner 
of   payment   desired,   rate,   character   of   the 
property,   estimate  of   value,   exact  location, 
boundaries,  etc.,  referring  to  book  numbers  of 
the  survey  department,   distance  from  rail- 
way station,  present  income.     He  must  also 
deposit  certificate  of  tax  collector,  signed  by 
the  mayor  of  village,  describing  the  property 
and  certificate  that  it  is  not  mortgaged  at  the 
time.    Also  a  certificate  of  the  province  officer 
giving  boundaries  and  book  numbers  from  the 
books  of  the  department.    Paid  tax  receipts  for 
the  past  three  years  must  also  be  presented  and 
a  deposit  made  to  cover  expenses.    If,  granted, 
after  the  appraiser's  report,  the  borrower  is 
asked  to  sign  a  bill  for  the  amount  of  expenses, 
and  when  papers  are  ready  for  execution  he 
must  go  to  Cairo  on  a  certain  day  and  hour 
and  sign.     When  the  loan  is  complete  the 
borrower  has  paid  from  i  J/2  to  2  per  cent,  for 
expenses. 


The  Philippines 


THE  Agricultural  Bank  of  the  Philip- 
pine Government,  created  by  the  act 
of  June  1 8,  1908,  of  the  Philippine 
Government,  is  a  governmental  sub- 
sidy, pure  and  simple,  all  its  capital  (1,000,000 
pesos)  being  subscribed  from  the  public 
funds.  The  administration  is  by  a  board 
of  directors  of  five  members,  three  being 
appointees  of  the  Governor- General,  and  the 
Secretary  of  the  Department  of  Finance  and 
the  Treasurer  of  the  Islands  ex-officio. 

The  corporation  does  a  general  banking 
business,  receives  time  deposits,  (rate  not  to 
exceed  4  per  cent.,)  from  the  Postal  Savings 


Bank,  provincial  and  municipal  governments 
and  others.  It  works  through  branches,  and 
its  principal  function  is  to  furnish  capital  to 
the  farmer,  on  time  loans,  not  to  exceed  ten 
years.  The  rate  is  10  per  cent,  and  loans  are 
made  only  on  improved  and  unencumbered 
urban  property,  unencumbered  farm  land 
and  harvested  crops.  The  limit  is  40  per 
cent,  of  the  value,  and  the  minimum  loan  is 
50  pesos,  the  maximum  25,000  pesos  to  a 
single  borrower.  One-half  the  capital  is  set 
aside  for  loans  of  not  over  5,000  pesos. 

Loans  are  made  to  satisfy  existing  liens, 
drainage  and  irrigation -projects,  purchase  of 


/I 


>  r^ 


38 


AGRICULTURAL     CREDIT     BANKS 


fertilizer  and  seeds,  machinery,  and  animals. 
Loans  are  made  only  to  agriculturists,  and 
exclusively  for  the  above  purposes.  No  fees 
are  required,  except  the  usual  recording  fees. 
Loans  take  the  usual  course  of  mortgage  loans 
when  the  lender  is  a  centralized  institution 
working  through  agents  and  branches.  The 
bank  opened  for  business  at  Manila  on  October 
II,  1909. 

The  Philippine  Bank  has  not  materially 
assisted  the  Filipinos,  for  as  late  as  the  spring 
of  191 2  the  Governor- General  of  the  Islands 


called  attention  to  undeveloped  condition  of 
agriculture  in  the  Islands,  and  the  fact  that 
neither  the  Postal  Savings  Bank  nor  the  Agri- 
cultural Bank  had  responded  to  the  needs  of 
the  small  farmer,  since  they  cater  principally 
to  the  large  holder.  The  small  farmer  seems 
suspicious  of  the  banks  and  resorts  to  private 
lenders,  who  impose  usurious  conditions.  Mort- 
gages on  small  farms  are  difficult  to  obtain  on 
account  of  defective  titles  and  costly  legal 
processes.  As  a  remedy  the  Raiflfeisen  Bank 
is    suggested. 


India 


THE  story  of  Germany  and  Italy  is  the 
story  of  India:  Rural  needs  great; 
peasantry  poor  and  hopelessly  bur- 
dened with  usury;  agriculture,  though 
''bristling  with  opportunities"  in  a  rich,  fer- 
tile country,  undeveloped.  The  people  are, 
as  a  rule,  honest  and  industrious,  and  only 
money  is  needed  to  bring  in  the  day  of  better 
things.  What  better  setting  for  a  scheme  of 
co-operative  credit? 

Officially  this  form  of  banking  has  been 
before  the  government  since  1883,  being  for- 
mally instituted  by  the  Co-operative  Societies 
Act  of  1906,  authorizing  the  appointment  by 
provincial  governments  of  officials  known  as 


registrars  of  co-operative  credit  societies,  with 
wide  powers  for  the  promotion  and  supervision 
of  credit  societies.  On  the  first  of  July,  1909, 
after  only  four  and  a  half  years'  operation,  over 
2,000  societies  were  in  existence  with  over 
184,000  members. 

These  registrars  ha\e  encouraged  the  work 
and  greatly  aided  the  movement.  The  State 
has  in  a  small  measure  assisted,  one-twelfth 
of  the  capital  coming  from  the  government. 
The  idea  has  been  so  favorably  received  that  it 
has  attracted  its  own  working  funds  rather 
than  depending  upon  outside  help.  Losses 
have  been  infinitesimal. 


Mexico 


THE  mortgage  banks  of  Mexico,  the 
first  of  which  was  chartered  in  1882, 
are  patterned  after  the  Credit  Foncier 
of  France.  The  bond  issues  are  limited 
to  20  times  the  paid-up  capital,  and  in  order 
to  prevent  over  issue  of  such  securities,  the  law 
provides  that  the  outstanding  bonds  and  un- 
paid mortgages  shall  balance  at  the  end  of 
each  half  year.  There  is  also  a  special  guar- 
anty fund  in  cash  which  must  always  be 
greater  than  the  total  amount  of  interest  on 
the  total  outstanding  bonds  for  the  half  year. 
Bond  holders  are  preferred  creditors  as 
respects  the  capital,  reserve  and  guaranty 
fund.  Bonds  are  legal  investments  for  trust 
funds. 

The  term  of  the  loan  must  not  exceed  forty 
years  and  only  first  mortgages  are  taken,  on  a 
fifty  per  cent,  basis.  The  yearly  payments  by 
borrowers  must  not  exceed  the  returns  on  the 
capital  invested  in  the  property  at  a  rate 
specified  in  the  by-laws  of  the  bank.  Install- 
ments are  payable  quarterly,  half-yearly  or 
yearly.     In  case  of  default  or  depreciation, 


the  law  provides  a  speedy  method  of  relief. 
To  afford  short  time  credit,  a  special  class 
of  banks  ("Banco  Refaccionarios")  have  been 
created  to  place  capital  at  the  disposal  of  agri- 
culture. These  banks  attract  capital  by  the 
issue  of  "cash  bonds"  bearing  interest  and  re- 
deemable in  not  less  than  three  months  nor 
longer  than  two  years.  They  are  essentially 
certificates  of  deposit  and  are  payable  to 
bearer.  These  cash  bonds  are  limited  to  twice 
the  paid-up  capital,  plus  the  cash  balance  in 
coin  or  bullion  added  to  the  amount  of  quickly 
negotiable  securities  and  bills  receivable  on 
hand.  They  are  on  a  par  with  bank  notes  in 
their  preferential  aspects.  In  short,  the  mort- 
gage banks  supply  the  long  time  loans,  obtain- 
ing capital  from  bond  issues,  and  the  Banco 
Refaccionarios  the  short  term  credit  through 
the  issue  of  the  cash  bonds  of  small  denomi- 
nation. The  loans  take  the  form  of  mortgage 
loans  with  amortization  features,  cash  loans 
for  periods  up  to  three  years,  collateral  loans 
up  to  two  years,  and  discounts  of  commercial 
pap)er. 


39 


Report  of  the  American  Commission 


4> 

I 
ti 


IN  HIS  report  covering  the  investigation 
of  rural  and  agricultural  credit  systems 
of  fourteen  European  countries,  to  the 
House  of  Governors  at  Colorado  Springs, 
Col.,  August  26,  1913,  Senator  Duncan  U. 
Fletcher  of  Florida,  chairman  of  the  Com- 
mission and  President  of  the  Southern  Com- 
mercial Congress  said  in  part:  "It  is  highly 
gratif>nng  to  report  that  the  stupendous  task 
assigned  to  us  was  accomplished.  The  coun- 
tries visited  included  Italy,  Austria,  Hungary, 
Russia,  Egypt,  Germany,  Denmark,  Switzer- 
land, France,  Spain,  Belgium,  Holland,  Eng- 
land and  Ireland.     *     *     * 

"Organizations  for  the  provision  of  credit 
facilities  for  European  farmers  follow  the 
natural  division  into  short  time  personal 
credit  and  long  time  land-mortgage  credit. 
The  personal  credit  organizations  have  the 
form  of  co-operative  societies. 

"Land  mortgage  credit  has  been  organized 
so  as  to  place  a  collective  security  back  of 
bonds  issued  by  land-mortgage  societies  in 
contrast  with  the  system  of  marketing  individ- 
ual loans  upon  individual  mortgages.  These 
land-mortgage  institutions  bring  to  European 
farmers  low  interest  rates;  the  privileges  of 
repaying  loans  in  small  fixed  annual  install- 
ments extending  over  a  term  of  years — in 
some  cases  as  long  as  seventy-five  years; 
protection  from  advance  in  interest  rates; 
and  the  practical  elimination  of  commission 
charges.  The  organizations  for  production 
and  distribution  of  farm  products  also  follow 
co-operative  lines." 

Personal  Credit 

"  Credit  is  the  keystone  of  the  organization 
proposed.  American  farmers  possess  poten- 
tial credit  of  vast  amount.  The  task  is  to 
discover  a  plan  whereby  that  credit  may  be 
made  cheaply  and  easily  available.     *     *     * 

"The  most  highly  developed  systems  of 
short-time  agricultural  credit  institutions  are 
found  in  Germany.  They  are  in  the  form  of 
a  pyramid  composed  of  local  co-operative 
credit  societies,  central  societies  operating 
generally  over  a  province  or  adrriinistrative 
district  and  a  main  central  society,  as  the 
apex,  at  Berlin.     *     *     * 

"In  their  operation  it  is  necessary  to  insure 
two  things,  first,  that  creditors  shall  be  pro- 
tected in  their  loans,  and  second,  that  mem- 
bers shall  be  protected  against  the  losses  to 
which  their  liability  subjects  them.  This  is 
done,  first,  by  admitting  to  the  society  only 
persons  of  good  standing.  Then  it  is  provided 
that  loans  shall  be  made  only  for  productive 


purposes,  the  borrower  being  required  to  state 
for  what  purpose  he  desires  a  loan.  Further, 
the  territory  of  operations  for  each  society  is 
limited  to  an  area  wherein  every  member 
knows  every  other  member.  The  ofl&cers  of 
the  society  are  so  chosen  that  one  set  or  board 
keeps  check  on  the  other.  The  general 
management  of  the  affairs  of  the  society  is 
left  in  the  hands  of  the  general  assembly  of 
all  members.     *     *     * 

"All  such  local  societies  within  a  certain 
territory  are  combined  to  form  a  central  society. 
A  central  bank  is  established  which  has,  first, 
a  small  cash  capital  subscribed  by  the  local 
societies,  and  secondly,  the  collective  liability 
of  its  constituent  banks  as  capital.  The  main 
central  banks  act  as  equalizers  for  the  central 
banks  above  mentioned.  The  effect  of  this 
pyramiding  of  the  societies  is  to  concentrate 
all  of  the  borrowing  and  investing  for  a  system 
in  one  big  institution.     *     *     *" 

Mortgage  Credit 

"The  worst  feature  of  the  farm  mortgage 
in  this  country  is  in  its  individual  character. 
An  investor  buying  a  farm  mortgage  must 
determine  the  sufficiency  of  the  security 
offered;  must  attend  to  collections  of  principal 
and  interest;  must  see  that  the  taxes  are  paid 
and  that  the  property  is  not  allowed  to  de- 
preciate in  value. 

"The  second,  and  perhaps  the  greatest, 
disadvantage  is  the  limited  time  for  which  a 
farmer  may  borrow  money  on  a  mortgage  and 
the  fact  that  he  is  required  to  pay  back  in  a 
lump  sum  the  entire  principal  of  the  loan  at 
the  end  of  that  short  time  or  else  secure  a 
renewal.  These  disadvantages  will  rest  upon 
the  farmer  so  long  as  he  is  obliged  to  sell  his 
mortgage  direct  to  the  investor.     *     *     * 

"The  effect  of  the  European  system  is  to 
break  all  connection  between  the  mortgagor 
and  the  mortgagee.  The  mortgage  bonds  are 
secured  by  the  mortgages,  but  are  the  direct 
obligation  of  the  institutions.  No  one  bond 
is  secured  by  one  mortgage,  but  each  bond  is 
a  lien  against  all  of  the  mortgages.  They  are 
issued  payable  to  bearer;  are  generally  listed 
on  the  exchanges  and  so  form  a  liquid  asset. 
The  farmers  are  charged  a  rate  sufficiently 
above  the  rate  paid  on  the  bonds  to  clear  a 
margin  for  the  institution  to  pay  expenses, 
and  build  up  reserves.     *     *     *       ^ 

"These  mortgage  bonds  run  for  an  indefinite 
period.  Each  year  the  farmers  are  required 
to  pay,  besides  the  interest,  a  certain  per- 
centage towards  reducing  the  principal  of  the 
loan." 


40 


-■^^i^^  -^ 


THE  LIBERTY 
NATIONAL  BANK 

of 
New  York 


CAPITAL $  1,000,000 

SURPLUS  AND 
UNDIVIDED   PROFITS    -     2,800,000 


DEPOSITS 


29.000,000 


OFFICERS 

SEWARD    PROSSCR      .......        PRESIOtNT 

HENRY    P.    DAVISON  .       CHAIRMAN   EXECUTIVE  COMMITTEE 

DANIEL    G.    REIO         -        -        -        -        -        >  VICE-PRESIDENT 

ZOHETH    S.   FREEMAN        .....     VICE-PRESIDENT 

CHARLES    W.    RIECKS       -        .        -  VICE-PRESIDENT  &  CASHIER 
HARVEY    D.   GIBSON     ......      VICE-PRESIDENT 

FREDERICK    P.    MCGLYNN     ...  ASSISTANT    CASHIER 

HENRY    S.    BARTOW     .....    ASSISTANT    CASHIER 


Rogers  &  Company,  Chicago  and  New  York 


Date  Due 

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